Brent Crude Oil – The “Sweet” Side of Oil Investing

Posted in Market Research by on December 7, 2016

Not all crude oils are the same, so not all crude oil investing is the same. There are several benchmark oils around the world, including WTI, Dubai and Brent. Each represents different types of oil, varying in consistency and sulfur content. With different oils from different areas of the globe, benchmarks allow investors to know what kind of product they are buying. It allows for regional price benchmarking depending on the area of production, which usually supplies to neighboring countries.

How Brent Is Different From Other Oil Types

Brent is light and sweet. Light means that it is low density, sweet means that it is low in sulfur. Brent is used as a benchmark for light sweet crude oil prices in the region near the North Sea. The “Brent Blend” actually consists of four specific oil types:

  • Brent
  • Forties Blend
  • Oseberg
  • Esofisk

These are commonly known as BFOE and they can be found near the coast of the United Kingdom and Scandinavia. Together they make a significant impact on oil prices around the world. Brent oil futures can be bought and sold on the ICE in Europe and the NYMEX in the United States. As one of the most liquid oil-backed financial instruments, Brent futures can be a wise addition to an investor’s portfolio.

Why Invest in Brent Oil

Brent oil, or any light sweet oil for that matter, is highly desirable for oil processers, plain and simple. The low density and low sulfur content makes it much easier to refine into gasoline for commercial use. These qualities make Brent Blend oils highly valuable to buyers who will actually use the commodity. Since the Brent is also used to set oil prices on the futures markets it is important for investors who are purely financial to take notice as well.

Until recently all the global benchmarks closely followed each other, but in the past year oil prices from around the world have plummeted, resulting in divergence of prices. Prices have declined due to increased production from around the world, giving investors a chance to take advantage of market volatility.

Brent General Investing

Brent oil futures are traded on the ICE and the NYMEX and it is used for roughly half of the world’s oil price benchmarking. This makes it one of the most important commodities found in the financial markets.
If you are looking to invest in Brent futures it is important to know what can affect its prices. Understanding what end products use crude oil is a great place to start. Light and sweet oils are generally easier to refine and if they’re close to a pipeline it becomes even more valuable.

Brent oil is primarily used in:

  • Gasoline
  • Diesel fuel
  • Asphalt
  • Jet fuel

Following these industries can help oil traders invest in Brent at the right time. It is also important for oil investors to watch the spreads between Brent and other benchmarks like Dubai and WTI. Current events also play a major role in determining when it is a good time to invest; for instance, legislation on new oil discovery techniques, OPEC decisions to reduce oil production, and proximity of pipelines and refineries.

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