Brent Crude is a major trading classification of sweet light crude oil that serves as a
major benchmark price for purchases of oil worldwide. Brent Crude is extracted from the
North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes. The Brent
Crude oil marker is also known as Brent Blend, London Brent and Brent petroleum.
The other well-known classifications are the OPEC Reference Basket, Dubai Crude, Oman Crude,
Urals oil and West Texas Intermediate. Brent is the leading global price benchmark for
Atlantic basin crude oils. It is used to price two thirds of the world's internationally
traded crude oil supplies.
Background Originally Brent Crude was produced from the
Brent oilfield. The name "Brent" comes from the naming policy of Shell UK Exploration
and Production, operating on behalf of ExxonMobil and Royal Dutch Shell, which originally named
all of its fields after birds. But it is also an acronym for the formation layers of the
oil field: Broom(oseBerg), Rannoch, Etive, Ness and Tarbert.
Petroleum production from Europe, Africa and the Middle East flowing West tends to be priced
relative to this oil, i.e. it forms a benchmark. However, large parts of Europe now receive
their oil from Russia. Characteristics
Brent blend is a light crude oil, though not as light as West Texas Intermediate. It contains
approximately 0.37% of sulphur, classifying it as sweet crude, yet not as sweet as WTI.
Brent is suitable for production of petrol and middle distillates. It is typically refined
in Northwest Europe. Brent Crude has an API gravity of around 38.06
and a specific gravity of around 0.835. Paper Market Trading
The ICE Futures Europe symbol for Brent crude futures is B. It was originally traded on
the open outcry International Petroleum Exchange in London, but since 2005 has been traded
on the electronic IntercontinentalExchange, known as ICE. One contract equals 1,000 barrels.
Contracts are quoted in U.S. dollars. Each tick lost or gained equals $10.
Pricing
Historically price differences between Brent and other index crudes have been based on
physical differences in crude oil specifications and short-term variations in supply and demand.
Prior to September 2010, there existed a typical price difference per barrel of between ±3 USD/bbl
compared to WTI and OPEC Basket; however, since the autumn of 2010 Brent has been priced
much higher than WTI, reaching a difference of more than $11 a barrel by the end of February
2011. In February 2011 the divergence reached $16 during a supply glut, record stockpiles,
at Cushing, Oklahoma before peaking at above $23 in August 2012. It has since decreased
significantly to around $18 after refinery maintenance settled down and supply issues
eased slightly. Many reasons have been given for this widening
divergence ranging from a speculative change away from WTI trading, Dollar currency movements,
regional demand variations, and even politics. The depletion of the North Sea oil fields
is one explanation for the divergence in forward prices.
The US Energy Information Administration attributes the price spread between WTI and Brent to
an oversupply of crude oil in the interior of North America caused by rapidly increasing
oil production from Canadian oil sands and tight oil formations such as the Bakken Formation,
Niobrara Formation, and Eagle Ford Formation. Oil production in the interior of North America
has exceeded the capacity of pipelines to carry it to markets on the Gulf Coast and
east coast of North America; as a result, the oil price on the US and Canadian east
coast and parts of the US Gulf Coast since 2011 has been set by the price of Brent Crude,
while markets in the interior still follow the WTI price. Much US and Canadian crude
oil from the interior is now shipped to the coast by railroad, which is much more expensive
than pipeline. Delivery dates
In addition to the IntercontinentalExchange, Brent crude financial futures are also traded
on the NYMEX, with the symbol BZ, and have expiry dates in all 12 months of the year.
Brent Index The Brent Index is the cash settlement price
for the IntercontinentalExchange Brent Future based on ICE Futures Brent index at expiry.
The index represents the average price of trading in the 25 day Brent Blend, Forties,
Oseberg, Ekofisk market in the relevant delivery month as reported and confirmed by the industry
media. Only published cargo size) trades and assessments are taken into consideration.
The index is calculated as an average of the following elements:
1. A weighted average of first month cargo trades in the 25-day BFOE market.
2. A weighted average of second month cargo trades in the 25 day BFOE market plus or minus
a straight average of the spread trades between the first and second months.
3. A straight average of designated assessments published in media reports.
First month weighted average This is an average of the cargo trade prices
reported, weighted to include multiple trades at any one price level. If media sources should
conflict as to how many trades took place at a given price, then ICE Futures will endeavour
to clarify the actual amount of trades through contact with the media sources and market
users, whilst reserving the right to omit trades that cannot be substantiated to the
satisfaction of the Exchange. Example: Should media sources report the following
25-day trades for the first month: First month weighted average = 88.610
Second month deals plus/minus spread trades This second element in the calculation produces
an implied average price for the first month of the 25-day market, by averaging the second
month traded cargo prices plus or minus an average of the spread trades between the first
and second months. Trades in the second month of the 25-day market are also taken into consideration
in this second element of the calculation, after having been adjusted by the size of
the differential between the first and second 25-day months. Trade prices for the second
month are averaged in the same way as above, and the average 1st-2nd month spread value
is determined by the straight average price of spread trades documented by media sources.
Example: Should media sources report the following 25 day cargo trades for the second month:
Second month weighted average = 88.588 Average spread trade prices
Example: Should media sources report the following 25-day trades for the first-second month spread:
(6*0.04) +/10 Average spread trade price = 0.036
In a backwardated market, the average spread trade price will be added to the weighted
average trade price for the second month, in order to construct the implied first month
price level. The spread price would be subtracted from the average second month price in the
event of a contango market. Thus, the second month weighted average of $88.588 plus the
average differential of $0.0362 would give an implied first month price of $88.624.
Intra-day price assessments The industry media publish 25-day BFOE price
assessments throughout the trading day. The midpoint of each quote is used to calculate
an average for the whole trading day. The trading day is taken from 09:30 GMT–19.30
inclusive. Example: Should media sources publish the following quotes throughout the day for
the first 25-day BFOE month, these would be averaged to give the following results:
Average market assessment = 88.632 See also
List of crude oil products ETF Securities
Iranian oil bourse Petrobourse
Petrodollar warfare Petroeuro
Petroleum classification References
External links Definition
crude oil types