MettaInsights: Brent Crude Oil Market
Oct 26, 2021
What is Brent Crude Oil?
Brent Crude may refer to any or all of the components of the Brent Complex, a physically and financially traded oil market based around the North Sea of Northwest Europe; colloquially, Brent Crude usually refers to the price of the ICE Brent Crude Oil futures contract or the contract itself. (1)
Brent Crude is more ubiquitous than other types, and most oil is priced using Brent Crude as the benchmark, akin to two-thirds of all oil pricing. Brent Crude is produced near the sea, so transportation costs are significantly lower. In contrast, West Texas Intermediate is produced in landlocked areas, making transportation costs more onerous. (2)
What is Brent Crude Oil Used For?
Due to its “light and sweet” nature, Brent Crude is preferred in refining oil to produce diesel, gasoline, and other end products. It is considered “light and sweet” due to its relatively low density and low sulfur content. (3)
Price Performance in 2021
The price of Brent Crude soared in 2021 hitting a 5-year high of $86.39 per barrel this week according to Bloomberg. That’s a 90% increase since January.
There are several key reasons behind this year’s Crude price gain.
With the shock of the Covid-19 pandemic subsiding and some of the largest economies opening up for business, energy demand is returning. At the same time, due to low reserves, underperforming renewables, and increasing carbon costs, an energy crisis is raging in Europe with prices of other energy commodities soaring. The value of coal has more than tripled since January this year making Brent Crude an attractive alternative that could support the uptick of economic activity.
To keep prices stable, increased demand must be matched with increased supply. Major oil-producing countries (OPEC+) could alleviate the upwards price pressure. They have already announced their intention to do so, but it is unclear whether that will happen in 2021 or if it will be enough to match rising demand in the industrial economies, especially during the upcoming winter period. (4)
According to Bloomberg, Larry Fink, chairman and chief executive officer of BlackRock Inc., said there’s a high probability that crude could hit $100 a barrel. According to other experts, underinvestment in new oil supply due to increased concerns around climate change could lead to a further increase in prices. (5)
“Short-term policy related to environmentalism, in terms of restricting the supply of hydrocarbons, has created energy inflation, and we are going to be living with that for some time,” Fink said at the Saudi Future Investment Initiative conference. (5)
It is therefore highly likely that both businesses and consumers must get ready to absorb more energy-related costs in the next few months.
The Mettаlex DEX
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- Wikipedia. Brent Crude. Accessed on: 26.10.2021. URL.
- Investopedia. Oil. Accessed on: 26.10.2021 URL.
- Corporate Finance Institute. What is North Sea Brent Crude? Accessed on: 26.11.2021 URL.
- Live Mint. Five reasons why global oil prices have jumped to 3-year high. Accessed on: 26.10.2021. URL.
- Longley, Alex et al. Brent Oil Near Three-Year High as BlackRock Sees Chance of $100. Bloomberg Digital. Updated on October 26, 2021, 4:12 PM GMT+3. Accessed on: 26.10.2021. URL.
Check out the rest of the MettaInsights research articles to educate yourself on commodity markets such as Nickel, Palladium, Zinc, Coal, European Union Emission Allowances (EUAs), Wheat, Uranium, Natural Gas, Lithium Carbonate, Iron Ore.
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