Factors Moving Brent Crude Prices

Understanding the factors moving Brent crude prices can be challenging for some traders and investors. The oil market can be incredibly complex, with countless variables contributing to the ever-fluctuating Brent crude prices. This makes it more challenging to protect oil investments or capitalise on market trends.

This article aims to refine your understanding of the key factors moving Brent crude prices to narrow the knowledge gap. Educating yourself on what shapes Brent crude oil, you will navigate the unknown more confidently and start making more informed decisions. Specifically, we will dive into the following:

• What is Brent, its properties, its origin, and why it's the world's oil pricing benchmark
• What research reveals about the factors moving Brent crude prices
• Specific examples affecting Brent crude prices that are more relevant now
• Why do policymakers, business leaders, and traders track Brent crude
• The importance of learning about the factors moving Brent oil prices for trading success

Plus500 offers a range of tools and resources to help traders track and respond to the dynamic factors moving Brent crude prices.

What Is Brent

Brent oil (EB) represents the crude oil benchmark used for pricing oil. Around 80% of global oil prices are linked to the price of Brent crude, making it less susceptible to regional issues that may impact different types of crude oil.

The oil referred to as Brent is a light, high-quality type of crude oil suitable for producing gasoline (RB), diesel fuel, and other petroleum products. It has a low sulphur content of around 0.37% and an American Petroleum Industry (API) gravity of approximately 39.8. It also contains low levels of contaminants, has a low pour point and viscosity and a high yield of gasoline and diesel upon refining.

Although Brent was discovered as early as 1859, exploration began only in the late 1960s. Trading oil futures contracts has been live since the 1970s. In fact, Brent futures contracts continue to be traded in US dollars as the US remains the world's largest economy, which means oil is priced in dollars, using the Brent Crude Oil Price Index based on the average price of different types of Brent blend crude.

Brent Oil Meaning

Archived data from the CO2 Storage Atlas, Norway’s petroleum directorate, explains what Brent oil means. What does Brent oil mean? It originates from North Sea oil rigs locations, wells 211/29-3 and 33/9-1, East Shetland Basin. It comprises five formations: the Broom, Rannoch, Etive, Ness, and Tarbert (Brent).

Brent Blend Meaning

Brent crude is a blend of six major oils: Brent, Forties Blend, Oseberg, Ekofisk, Troll, and Midlands (BFOETM).

Midlands was added to the Brent Complex in 2023, a suitable choice due to its large export volumes to Europe and competitive quality relative to Brent.

Europe started sourcing additional imports from the US in 2021, incorporating more into their Brent crude oil blend, making US shale more critical for Brent crude pricing.

Notably, any light crude oil grade meeting certain viscosity and sulfur content specifications can be classified as Brent.

Where Does Brent Crude Come From?

Extracted from the depths of the North Sea, Brent crude is primarily refined in Northwest Europe, coming from multiple North Sea oil fields. However, North Sea oil is also shipped to the East Coast, Mediterranean, and elsewhere. Conversely, WTI crude oil (CL) is extracted or originates from Texas and North Dakota (US). Notably, both WTI and Brent are light, sweet crude oils.

The region contains large North Sea oil fields shared by the United Kingdom, Norway, and other countries. Nearly 100 fields are engaged in domestic production and have access to storage of crude oil stocks, transferring Brent from nearby North Sea rigs.

The Brent field, operated by one of the North Sea oil companies, Shell, lies off the Northeast coast of the Shetland Islands (Scotland) and Norway. It consists/consisted of 4 large platforms now decommissioned. However, a new North Sea oilfield, Equionor's Rosebang, received recent approval from the UK government.

What Is Brent Crude Used For?

According to 2024 data from Statista, one barrel of oil contains around 20 gallons of gasoline, making it the most produced byproduct. It is followed by diesel, heating oil (HO), and lubricants, which account for a lesser volume Brent used.

Brent crude oil is used by industries like oil refining companies, transport and aviation, the petrochemical industry, FMCG (fast-moving consumer goods) companies, industrial power plants, paint manufacturers, and the plastics industry.

What Factors Affect the Price of Brent Oil?

As with West Texas Intermediate crude, Brent crude prices are dictated by a complex interplay of supply and demand for oil, the US dollar exchange rate (DX), and market liquidity. In a 2022 study, academic researchers used Brent crude oil historical prices ($/barrel), EIA (Energy Information Administration), and OECD (Organization for Economic Cooperation and Development) data to examine how five factors (Brent price, supply, and demand factors, geopolitical risk, and economic agents' expectations) affect the benchmark oil. The authors ranked eight variables based on influence (from high to low):

• BCI (Business Confidence Indicator) - 78%
• OPII (OECD Production Industry Index) - 66.3%
• CLI (Composite Leading Indicator) - 64.6%
• WP (World Crude Oil Production) - 25.4%
• CCI (Consumer Confidence Indicator) - 20.7%
• Geopolitical Risk Index (GPR) - 15.5%
• GCOI (Global Crude Oil Inventory) - 10.5%
• USSO (US Shale Oil Production) - 2.4%

Based on the study, the researchers found multiple factors positively affecting the price of Brent crude oil:

1. A decrease in WP can increase prices if demand remains constant.
2. Increased GPR can raise prices for oil-producing and oil-dependent countries.
3. Optimistic BCI, CLI, and CCI expectations can impact market sentiment and increase prices.
4. A lower supply of GCOI and a steady demand can result in higher prices.

However, these factors interact, creating a complex web of cause-and-effect that drives oil prices. The following five configurations, called the "Parsimonious solution", can also lead to higher Brent crude oil prices.

• Higher USSO, lower OPII, and less GPR.
• Higher OPII, lower GCOI, and lower CCI.
• Higher WP and lower GCOI.
• Lower OPII, lower CCI, higher GCOI and higher BCI, CLI, and CCI.
• Higher GPR, BCI and CLI and lower GCOI and CCI.

According to the study, an increase in US Shale negatively affects oil prices if demand is constant.

What Factors Move Brent Oil Prices Specifically?

Although Brent crude oil prices respond to global supply and demand dynamics, supply-demand dynamics can differ. Apart from properties/quality, Brent crude differs in extraction location, transportation, and trading. Below are the main factors that affect prices differently.

Logistics and Infrastructure

Brent crude is extracted from offshore oil North Sea rigs and has an advantage over landlocked crudes as it is easily transportable worldwide. So, transportation costs and the time taken to ship crude oil globally are important. Let's take an example of oil supply disruptions to understand these factors moving Brent crude prices better.

According to the EIA, Brent crude prices rose when the Middle East crisis forced tankers to travel around Africa rather than through the canal between Europe and Asia. The longer journey was expected to reduce Europe's supply, given that it takes an extra 10-20 days to deliver. With crude oil spending more time in transit, freight costs also rose.

Geography and Pricing

The location of key pricing hubs and patterns of crude oil trade is yet another factor affecting the Brent crude price of oil. With around two-thirds of US crude oil exports being WTI Midland crude and demand for refined products rising, Houston has become a major pricing centre for physical deliveries. With the US as the largest oil producer globally, surpassing Saudi Arabia and Russia, its limited storage capacity showcases the need for export.

Economic Policy and Market Perception

Aside from these examples, as governments focus on the energy transition, technological innovations will eventually reduce long-term oil demand, presenting another factor moving Brent oil prices. As a direct example, the UK's Rosebank field is expected to be less emissions-intensive than older oil and gas fields due to electrification plans.

Why Is Brent Crude Important For Economies

As a key barometer of global economic health, Brent provides significant signals to economists, business leaders, and traders. To better explain its significance, Brent's negative correlation to an increase in short-term interest rates and a decrease in risk premium was viewed as a sign that the 2008 financial crisis may have started to abate. As such, fluctuations in the cost of Brent may reflect overarching economic forces, geopolitical shifts, and industrial challenges on top of unconventional monetary policy actions.​ Let's look at some forces that make Brent and crude oil important.

Economic Implications of Brent Crude Oil Prices

Higher Brent crude oil prices can worsen the trade balances and gross domestic product (GDP) for oil-importing countries due to increased import costs. This can lead to inflationary pressures, prompting central banks to tighten monetary policy by hiking interest rates.

The International Monetary Fund (IMF) has circulated that a $5 per barrel rise could represent a 0.2-0.4% GDP loss for oil importers, with pronounced impacts on industrialised economies. As a result, economic variables such as borrowing costs, consumer spending, and business investment are influenced. Conversely, oil-exporting nations may benefit from higher revenues from elevated prices.

Scale of Production and Demand Trends

The production of Brent crude involves commercial exploration, drilling, extraction, transportation, and more.

For example, Brent crude has made an important contribution to the UK economy, generating over £20 billion in tax receipts annually as of 2016.

Besides industrial effects, Brent crude can see increased demand from fuel consumption, which remains relevant following the pandemic.

However, looking at the longer trends, around 1.43 trillion barrels of world oil are left to be extracted globally, lasting around 45 years at current consumption rates.

Geopolitical Uncertainties and Energy Security

Geopolitical tensions may intensify during periods of high Brent prices, especially within oil-producing regions, heightening global uncertainty.

Note that North Sea Brent crude oil has been a central source of energy for Europe for decades, and higher prices directly affect European consumers' and businesses' energy costs.

Recent geopolitical events highlight the need for proper Brent crude oil analysis and the implications of oil price shocks for consumer price inflation (CPI).

Impact on Commodity Trading and Equity Markets

Brent crude is closely monitored by physical traders and governments, given its liquidity and role as the global benchmark for oil prices.

Rising energy costs precipitated by supply issues could exacerbate inflationary pressures and affect government revenues through oil companies involved in commodity trading. Industrial companies' share prices may experience direct fluctuation in stock returns during movements in the Brent crude futures market.​

Just the UK's crude oil and natural gas (NG) extraction sector alone comprises around 120 companies.

Why Should You Care about the Factors Moving Brent Oil Prices

To trade Brent crude oil successfully, traders need a good understanding of the energy market, the market actors, and how major players think. Let's delve into why understanding the Brent crude oil market is so crucial:

Informed Decisions

When it comes to trading, knowledge is power. The more one understands the factors moving Brent oil prices, the better the Brent oil price predictions become. Flexing trading strategies based on new information and a keen understanding of the financial markets can help financial traders spot opportunities others may miss. However, this should complement Brent crude oil technical analysis and adaptability in an ever-changing oil market.

Risk Management

Brent investing has a high-risk profile proposition. Oil prices are volatile and depend on geopolitical tensions, wars, OPEC decisions, and demand in the physical market. While monitoring Brent crude price signals and variables is important, flexibility and adapting strategies based on new information are equally vital for Brent crude oil trading success.

Ongoing Learning

Even though the average price of Brent can be impacted by factors loosely correlated to supply and demand, frequent oil market research will aid in investment preferences caused by broader market cycles and dynamics. With regular practice, traders will continue learning the ropes of Brent crude oil investing and ultimately improve.

You can start with Plus500 Brent oil fundamentals, monitor all types of news and macroeconomic variables affecting Brent crude oil prices, and learn from educational resources to improve your crude oil trading skills now.

Conclusion

Delving into the factors moving Brent crude prices offers crucial knowledge deemed important for potential trading success, narrowing the gap to the ever-changing landscape of Brent crude oil. Whether assessing supply-demand dynamics, analysing business indicators, or the influence of geopolitics, each known piece of the puzzle can provide opportunities to make more informed decisions.

With Plus500, you can gain exposure to various markets for crude Brent, like oil company stocks, commodity-linked ETFs, Brent futures -traded crude oil futures contracts via CFDs- and options CFDs.

FAQs

Why is Brent crude more expensive than WTI?

Brent oil is more expensive than WTI due to its advantage of being a waterborne crude with access to global shipping, ports, and storage capacity, making it easily transportable worldwide.

Where is Brent crude produced?

It is extracted from the North Sea and produced by several countries that border this body of water. The primary countries involved in extracting Brent crude oil are the United Kingdom, Norway, Denmark, and the Netherlands.

Who owns North Sea oil?

The North Sea is not owned by any single entity but is bordered by several countries with rights to extract oil within their designated areas. However, foreign investors own at least 40% of North Sea oil and gas licenses.

Where is Brent crude delivered?

Brent crude is the world's internationally traded crude oil, allowing it to be processed by global refiners and delivered physically anywhere possible. The top 5 delivery destinations are the European Economic Area, China, the US, India, and Japan.

What is the Brent crude oil symbol?

The Brent oil futures market symbol depends on the exchange it is traded on. The symbol for the energy commodity CFD at Plus500 is EB, as quoted on ICE Futures Europe.