What is Brent Oil?
In the oil price market, there are two types of oils, namely WTI (West Texas Intermediate) and Brent. The latter gets its name from an oil field in the North Sea, exploited since 1976 which is located in the direct vicinity of Scotland. Of course, nowadays the name “Brent oil” no longer concerns this single operation, but a grouping of 19 different oil fields, all located in the North Sea.
Although the production of oil in this region is not the most important in the world and lags far behind that of the countries of the Middle East, the price of Brent oil is now used as an international benchmark. In fact, a large majority of the oils extracted in the world see their price indexed to that of Brent.
This helps us understand the importance of following its live price.
Historical rate and price of Brent oil:
Over the past ten years, the price of Brent oil has fluctuated widely. There are mainly 4 major periods. The first, which lasted from 2006 to 2008, brought Brent to an all-time high of around $ 146.31.
Just after 2008, the economic crisis caused the price to drop to $ 40.36 in January 2009. Period of decline which was immediately followed by a bullish recovery until May 2011 with a price around 120 dollars, which was maintained until recently.
Since the end of 2014, Brent oil, like WTI, has experienced a steep decline to a low of $ 49.97.
Where is the price of Brent oil listed?
The Brent oil price is quoted daily on the London Stock Exchange market and more specifically on the ICE or Intercontinental Exchange market.
The price of a barrel of Brent depends on purchases and sales of investors and therefore on speculation on an international level. The more buyers there are, the more the price of Brent rises and vice versa when there are more sellers.
So, to anticipate changes in the price of Brent oil, it is important to forecast the strength of the buying and selling of positions in this asset. The price of Brent oil is influenced by various factors including:
- The strength of demand from importing countries and therefore the economic and industrial health of these countries.
- The volume of oil produced in the North Sea as well as elsewhere by the OPEC countries.
- The geopolitical situation of producing countries.
- The value of the US dollar. Although Brent is produced in Europe, its price is quoted in dollars per barrel. Fluctuations in this currency therefore influence prices.
What is the difference between Brent oil and WTI oil?
You have probably noticed, when logging onto your trading platform, that you have access to two types of stock market oil, namely Brent oil and WTI oil. So, you may be wondering what the difference is between these two types of oil.
As we saw above, Brent oil is currently the benchmark oil in Europe. It relates to the oil produced in the North Sea. Brent oil shows a higher level of sulphur compared to WTI oil, As a result, it is generally considered to be of lower quality than WTI and is also more polluting. Its use is however more practical because this oil can be directly refined in Europe and in the Mediterranean to manufacture fuel such as gasoline, diesel or kerosene. However, its production remains severely limited due to the current deposits becoming less and less rich.
WTI or West Texas Intermediate oil is produced in the United States which also serves as a reference for this country for establishing the price as well as its quality. It is listed only on the US NYMEX market. WTI has a better quality than Brent with only 0.24% sulphur and is therefore less polluting.
The prices of Brent oil and WTI oil are generally correlated since they most often tend to move in the same direction. However, there is a slight price difference between the two types of barrels, which itself can change over time.
Some tips for trading Brent oil on the stock market:
If you want to invest in the price of a barrel of Brent, you will have to pay attention to various factors that may influence its evolution. First, you will need to know the economic health of the European countries that consume this oil the most in order to better assess the demand. In times of economic growth, the price of Brent tends to rise thanks to stronger industry demand, while in times of crisis, it tends to drop.
But it is also wise to take into account other influential factors such as the production of the OPEC countries, the American production and the Russian production which determine the level of supply and therefore also influence the price of a barrel of Brent oil.
Like other types of oil, Brent is traded in US dollars. The value of the dollar against the euro (the currency in which Brent oil is generally bought), therefore greatly influences the purchase volumes and therefore the direction of the trend.
Finally, technical analysis should also be integrated into your strategies since it will give you valuable indications on the direction and strength of the current trend.
You will find all of this information on your CFD broker's trading platform along with other practical analysis tools.
How to anticipate changes in the price of Brent oil?
If you want to invest in the price of Brent oil online, it's essential to be able to best anticipate the variations in its price. But how?
As a first step, you must take into account the data from the technical analysis. Oil is a particularly volatile asset since private investors have access to this market. The price of Brent oil is therefore subject to market sentiment and evolves in line with the psychological effects caused by important publications and events in particular. But that's not all! Technical signals such as support and resistance levels or even pivot points are indicators very often used as a starting point for taking positions by the majority of investors. So you can use them yourself to follow the general trend and trade while limiting the risks.
Of course, fundamental analysis is also important when trading Brent oil prices. As a priority, you should analyse the indicators of supply and demand which determine a large part of the price of the barrel:
- As far as supply is concerned, you need to consider the production of Brent in the North Sea, and that of other world oil producers that supply the market too such as the United States, the countries of the OPEC and Russia. You need to closely follow the determination of production quotas by OPEC.
- For the demand, you simply need to observe the economic situation of the countries which consume and therefore import Brent oil. European economic growth has a great influence on the price of this asset because when industry is functioning well, it consumes a lot of energy and therefore oil, which leads to a rise in prices.
In addition to supply and demand, it is important to consider other important fundamental indicators such as:
- The value of the dollar as it is in this currency that Brent is quoted as well as its exchange rate with the euro.
- The level of US stocks which are a good indicator of the global demand for oil.
- Geopolitical news affecting major oil producing countries such as countries in the Middle East.