What is Brent crude oil? Business News

Russian President Vladimir Putin’s brutal war with Ukraine sent petrol and diesel prices in the UK soaring on Thursday to £1.52 and £1.55 a liter respectively, as the international fallout from the violence begin to materialize a week after Moscow’s “special military operation”. spear.

Concern over the geopolitical ramifications of the invasion sent the market price of oil soaring and Brent crude – one of the industry’s three benchmarks – hit nearly $115 (£85.89) on barrel, its highest level in 10 years.

Russia usually exports around 5 million barrels of crude oil a day, more than 5% of the world’s total, but suppliers are now reluctant to deal with the country in light of the conflict, despite the West granting exemptions for the oil and gas during his campaign. penalties for keeping the lights on.

Traders fear that further instability developing after an order is placed could prevent the delivery of their oil and worry about complications in dealings involving Russian banks under sanctions after they were banned from the Swift payment system used to make payments between lenders.

Russian crude is currently being sold at a massive discount of $15 (£11) to $20 (£15) a barrel, but few European buyers are biting and Chinese and Indian traders lack the capacity to take the relay.

Given this backdrop and the fact that refined petroleum is the basic ingredient in gasoline production, the price of fuel at the pump has started to rise accordingly, further bad news for consumers already facing a cost of living crisis as global economies struggle. to bounce back from the closures imposed to fend off the coronavirus pandemic.

But what exactly is Brent crude, why is it used to judge value and why has it been impacted by events in Eastern Europe?

The international oil trade typically sees around 100 million barrels bought and sold every day, but this is actually a relatively recent phenomenon, with the first exchange taking place between the United States and the United Kingdom in 1861. when the Elizabeth Wattsa freighter, set out from Pennsylvania for London with a first shipment.

Trade remained largely regional until after World War II, when it gradually began to globalize as large corporations exercised greater control over the world’s natural resources.

Brent crude oil is extracted from the Shell North Sea oilfield of that name between the Shetland Islands and Norway and began to be used in 1985 as the benchmark by which the price of a barrel of oil is judged because it is light and “soft” and therefore easy to refine into fuel.

Because it comes from the sea, it can be easily transported by chartered tankers and the amount pumped changed according to demand, ensuring a constant supply.

As production from the Brent field declined, oil derived from other nearby fields – Forties, Oseberg and Ekofisk (the four collectively known as “BFOE”) – was factored into the benchmark mix.

Today, Brent crude represents only a small amount of the oil actually produced daily, but determines the value of 60% traded in oil contracts, futures and derivatives, not least because the 13 powerful countries that make up the Organization of the Petroleum Exporting Countries (OPEC), which controls most of the world’s oil production and distribution, uses Brent as its benchmark.

Other competing benchmarks are West Texas Intermediate (WTI) and Dubai/Oman.

The advantage of Brent over WTI, which is equally favorable for use in fuel production, is that it comes from the landlocked oilfields of the southern United States, as the name suggests, meaning that it is less easy to transport because it is dependent and restricted by the capacity of the pipeline.

That said, the fact that WTI comes from the relatively stable continental US means that it is less likely to be affected by market volatility in response to geopolitical disputes than Brent crude.

Brent’s future as an industry benchmark is uncertain, however, as resources are depleting and China’s recent efforts to promote Shanghai crude futures as an Asian alternative pose a threat. for his status.

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This notice was published: 2022-03-03 18:13:22

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