North Sea Brent Crude

A type of crude oil that is extracted from the North Sea in the area between the Shetland Islands and Norway

What is North Sea Brent Crude?

North Sea Brent Crude is a trading classification of crude oil that serves as one of the main benchmarks for oil prices worldwide. The North Sea Brent Crude oil classification is described as light and sweet due to its relatively low density and low sulfur content, respectively.

 

North Sea Brent Crude

 

Other oil classifications include Dubai Crude, Oman Crude, West Texas Intermediate (WTI), Shanghai Crude, and OPEC Reference Basket. Due to its light and “sweet” nature, Brent Crude is preferred in refining oil to produce diesel, gasoline, and other end products.

Brent Crude is used to price at least two-thirds of the world’s traded crude oil supplies, making it one of the most important oil benchmarks. The other widely used benchmark is known as West Texas Intermediate (WTI). The Organization of Petroleum Exporting Countries (OPEC) uses Brent Crude as its pricing benchmark. OPEC comprises 14 oil-producing countries and is largely responsible for setting oil prices.

Brent Crude is waterborne, which makes it cheaper to transport than WTI, which is extracted from landlocked areas of the US. Brent Crude is extracted from the North Sea in the Atlantic Ocean, which is bound by the United Kingdom, Norway, France, Denmark, the Netherlands, Germany, and Belgium. It is extracted as a blend of multiple crude oils, including Brent, Ekofisk, Forties, and Oseberg.

 

Summary

  • North Sea Brent Crude refers to a type of crude oil that is extracted from the North Sea in the area between the Shetland Islands and Norway.
  • Brent Crude is a sweet and light crude oil and with a sulfur composition of 0.37% and an API gravity of 39.8%.
  • Brent futures are traded on the  ICE under the symbol B.

 

History of North Sea Brent Crude

Brent Crude oil was discovered in 1859 in the North Sea, which is located in the Atlantic Ocean. However, exploration did not start until 1966 when commercial exploration started on the active oil fields. Exploration activities increased in the early 1970s, and the first oil pipeline was constructed in 1975.

Brent Crude oil is transported via pipeline to the Saloomwoo oil terminal in Britain for refinery and processing. The high quality of Brent Crude and the stability of the North Sea area have made exploration and production of the oil beneficial.

The naming of the oil field as Brent oilfield is due to the naming policy of the main exploration company, Shell UK Exploration and Production, which names its oil fields after birds. The term “Brent” is borrowed from a North American bird species known as a Brent Goose.

 

Brent Crude Oil Trading

Following the OPEC oil crisis of the 1970s, crude oil commodities began trading on the futures market. Brent futures are traded on the New York Mercantile Exchange (NYMEX) in the United States under the symbol BZ. They are also traded on the Intercontinental Exchange (ICE) in Europe under the symbol B.

Brent futures contracts on the ICE use the US dollar as the main currency. One contract of Brent futures equals 1,000 barrels of oil, which is the equivalent of 159m3. Apart from futures, investors also trade options that are linked to North Sea Brent Crude.

The Brent Index is the settlement price for Brent futures on the ICE. When calculating the Brent index, the following elements are taken into consideration:

  • The weighted average of the first-month cargo trades.
  • The weighted average for the second-month cargo trades, plus/minus the weighted average of cargo spreads of the first and second months.
  • An average of the assessments reported and confirmed by the media.

 

Brent Crude vs. West Texas Intermediate

Brent Crude and West Texas Intermediate (WTI) are the two most widely traded types of crude oil and are used as a benchmark when setting oil prices. The key differences between these two types of crude oil include:

 

Extraction location

Brent Crude is produced in the North Sea part of the Atlantic Ocean. The Brent oil fields are located between Norway and Shetlands in Europe. The oil is transported through a pipeline to the Saloomwoo oil terminal for exportation.

WTI crude oil is extracted from US oil fields located in Texas, Louisiana, and North Dakota. The oil is then transported via pipeline to Cushing, Oklahoma.

 

Composition

Brent Crude and West Texas Intermediate contain different sulfur content and API gravity, which contributes to the difference in oil prices. Brent Crude is a light crude oil, and it contains 0.37% of sulfur compared to the 0.24% sulfur content in West Texas Intermediate.

Usually, the lower the sulfur content, the sweeter the oil is and the easier it is to refine. Both types of crude oils are considered sweet oils, even though Brent Crude is not as sweet as West Texas Intermediate.

Crude oil gravity is rated on a scale of 10 to 70, where a higher gravity means the oil is less dense. Brent Crude’s API gravity is 38%, compared to West Texas Intermediate’s API gravity of 39.8%. Both types of crude oil are considered relatively light.

 

Additional Resources

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

  • Oil and Gas Primer
  • Basic Materials Sector
  • Oil and Gas Company Balance Sheets
  • Vertical Well

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!