An overview of Brent crude oil
What is crude oil?
There are numerous terms and definitions that are useful to answer the question above. For example:
- ‘Crude oil means a mixture of hydrocarbons that exists in liquid phase in natural underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities.’ (United States Environmental Protection Agency (EPA))
- ‘Liquid petroleum that is found accumulated in various porous rock formations in Earth’s crust and is extracted for burning as fuel or for processing into chemical products.’ (Britannica)
- ‘Crude oil is oil in its natural state before it has been processed or refined.’ (Collins Dictionary)
- ‘In its natural, unrefined state, crude oil ranges in density and consistency, from very thin, lightweight and volatile fluidity to an extremely thick, semi-solid heavyweight oil.’ (oilprice.com)
- ‘Crude oil is a mineral oil consisting of a mixture of hydrocarbons of natural origin, yellow to black in colour, and of variable density and viscosity.’ (Organisation for Economic Co-operation and Development (OECD))
- ‘It is a fossil fuel.’ (National Geographic Society)
(Accentuations in definitions above are by the article writer.)
Although it is often called ‘black gold,’ crude oil can vary in colour, from black to yellow, based on its hydrocarbon composition.
What is a hydrocarbon?
The term hydrocarbon refers to an organic chemical compound that is exclusively made up of hydrogen (H) and carbon (C) atoms.
Types of crude oil
In the oil industry, crude oil is primarily categorised according to its sulfur content and its API gravity, or its viscosity, volatility, and toxicity.
Crude oil contains sulfur, ‘which occurs either as elemental sulfur or in compounds such as hydrogen sulfide,’ according to Britannica. In terms of its sulfur content, crude oil is categorised as ‘sweet or ‘sour.’ Sweet crude oils have sulfur contents of 0.5 percent or less by weight, while sour crudes contain sulfur of 1 percent or more by weight.
API gravity refers to the American Petroleum Institute gravity scale, comparing how light or heavy crude oils are in relation to water. If a crude oil’s API gravity is less than 10, it is heavier than water and will sink. If the API gravity of oil exceeds 10, it will float on top of the water.
In terms of their API gravity, crude oils can be categorised as:
- Heavy: 10-20° API gravity
- Medium: 20-25° API gravity
- Light: Above 25° API gravity
Based on the two categories above, there are six types of crude oil, namely:
- Heavy/Sweet
- Heavy/Sour
- Medium/Sweet
- Medium/Sour
- Light/Sweet
- Light/Sour
Sour crude oil is more expensive than light crude oil because it contains more carbon and sulfur, requiring more refining.
- In terms of viscosity, volatility, and toxicity
These terms can simply be described as follows:
- Viscosity refers to the oil’s resistance to flow.
- Volatility is an indication of how quickly the oil evaporates into the air.
- Toxicity ‘refers to how dangerously poisonous the oil & its refining processes are to local life, from humans to flora and fauna as well as other environmentally fragile living entities and organisms,’ according to oilprice.com.
According to this classification, there are four primary types of crude oil, namely:
1. Very light oils/Light distillates
This type of oil tends to be extremely volatile and can evaporate within a few days, which quickly diffuses, decreasing toxicity levels.
Examples are gasoline, kerosene, naphtha, jet fuel, petroleum ether, and petroleum spirit.
2. Light oils/Middle distillates
These oils include diesel fuel, most domestic fuels, and light crude marine gas oils, to name a few.
They are moderately volatile, moderately toxic, and slighter evaporative.
3. Medium oils
Medium crude oils are the most common type of crude oil. They are less volatile than light crude oils, making them less susceptible to evaporation. Furthermore, they are more vicious than light crude oil.
4. Heavy fuel oil
Heavy fuel oil (HFO) is mainly used as marine fuel. They have particularly high viscosity and density. HFO is described as follows by forbes.com: ‘When all the more refined products have been extracted from Crude Oil, the sticker, a tar-like substance with a viscosity similar to a thick black peanut butter is left behind as Heavy Fuel Oil.’
Snippets from the history of crude oil
Fossil fuel such as oil has been used for more than five centuries, especially as medicine to treat frostbite and gout.
According to some historians, the first known oil wells were drilled about 2,500 years ago in what is now known as China. Bamboo was used to dig wells and extract crude oil.
During the ninth century, fossil oil was first distilled to manufacture kerosene in Persia (nowadays known as Iran).
Crude oil was first discovered and developed during the Industrial Revolution (about 1760 to 1840), and its industrial uses were specifically developed in the nineteenth century.
In 1948, the world’s biggest conventional oil field (in terms of reserves and production) was discovered in Saudi Arabia. It is called the Ghawar oilfield and it has produced Arabian light crude oil since 1951. It is located in the eastern part of the Empty Quarter desert, along the western Gulf coast. The reservoir is 280 kilometres long and 40 kilometres wide, covering an area of 11 200 square kilometres. The oil field can produce 3.8 million barrels of oil daily.
In 1959, crude oil was discovered in the North Sea area. Although, commercial exploration of the commodity only commenced in 1966.
In 1960, the Organisation of Petroleum Exporting Countries (OPEC) was founded in Iraq at the Baghdad Conference on September 10-14. The founder members were Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
The production of crude oil
The Organisation for Economic Co-operation and Development (OECD) defines crude oil production ‘as the quantities of oil extracted from the ground after the removal of inert matter or impurities. It includes crude, natural gas liquids (NGLs) and additives.’
- Global oil reserves in 2020
According to Statista, the following ten countries had the largest oil reserves1 in the world in 2020:
| Rank | Country | 2000 | 2010 | 2020 | Increase2 |
| 1 | Venezuela | 76.8 | 296.5 | 303.8 | 295.57% |
| 2 | Saudi Arabia | 262.8 | 264.5 | 297.5 | 13.20% |
| 3 | Canada | 181.5 | 175.2 | 168.1 | -7.38% |
| 4 | Iran | 99.5 | 151.2 | 157.8 | 58.59% |
| 5 | Iraq | 112.5 | 115 | 145 | 28.89% |
| 6 | Russia | 69 | 89.7 | 107.8 | 56.23% |
| 7 | Kuwait | 96.5 | 101.5 | 101.5 | 5.18% |
| 8 | United Arab Emirates | 97.8 | 97.8 | 97.8 | 0% |
| 9 | USA | 30.4 | 35 | 68.8 | 126.32% |
| 10 | Libya | 36 | 47.1 | 48.4 | 34.44% |
- Measured in billion barrels
- From 2000 to 2020
- Major oil producers in 2021
Figures obtained from visualcapitalist.com indicate that the following ten countries were the major producers of oil in 2021.
| Rank | Country | Million barrels per day | Percentage of total |
| 1 | USA | 16.6 | 18.5 |
| 2 | Saudi Arabia | 11.0 | 12.2 |
| 3 | Russia | 10.9 | 12.2 |
| 4 | Canada | 5.4 | 6.0 |
| 5 | Iraq | 4.1 | 4.6 |
| 6 | China | 4.0 | 4.4 |
| 7 | UAE | 3.7 | 4.1 |
| 8 | Iran | 3.6 | 4.0 |
| 9 | Brazil | 3.0 | 3.3 |
| 10 | Kuwait | 2.7 | 3.0 |
| Organisation/Region | Production (Barrels per day) | Percentage of total |
| OPEC1 | 31.7 million | 35% |
| North America2 | 23.9 million | 27% |
| CIS3 | 13.8 million | 15% |
| Rest of the world4 | 20.5 million | 23% |
| Total | 89.9 million | 100% |
- Processing and refining crude oil
Crude oil is a mixture of hydrocarbons formed from animal and plant remains over a period of millions of years. The plant and animal remains were exposed to a combination of pressure and heat under the Earth’s crust, turning the remains into crude oil. Hence, crude oil is referred to as a fossil fuel.
Crude oil is typically extracted from the earth through drilling, on land oil rigs are used, while oil platforms are used when the oil is extracted from the earth at the bottom of oceans.
After its extraction, crude oil is transported to oil refineries via pipelines, trucks, rail, or oil tankers.
At the oil refineries, the crude oil is turned into different products and materials. This is done by heating the oil in a furnace and sending it to a distillation column (tower), where it is separated by boiling point.
Subsequently, a method called cracking is used, breaking the large hydrocarbon molecules into smaller molecules by applying heat, pressure and a catalyst to produce finished products such as gasoline, diesel fuel, and asphalt, to name a few.
🏆10 Best Forex Brokers in South Africa
| Rank | Broker | Broker Review | Regulators | Minimum Deposit | Visit Broker |
|---|
| 🥇 |  | Read Review | ASIC, FSA, CBI, BVI, FSCA, FRSA, CySEC, ISA, JFSA | $100 | 
|
| 🥈 |  | Read Review | FSCA, FCA, DFSA, FSA, CMA | $0 |
|
| 🥉 |  | Read Review | CySEC, MWALI, FSCA | $25 |
|
| 4 |  | Read Review | ASIC, CySEC, FSA, SCB | $200 |
|
| 5 |  | Read Review | FSA, FSCA | $250 |
|
| 6 |  | Read Review | FSA, FSC, FSCA, ASIC, CMA | $20 |
|
| 7 |  | Read Review | FSC, FSCA | $50 |
|
| 8 |  | Read Review | ASIC, CySEC, FSCA, FSA, FSC, CMA | $100 |
|
| 9 |  | Read Review | ASIC, CySEC, IFSC, DFSA, FCA | $5 |
|
| 10 |  | Read Review | FSA, CySEC, FSCA, FSC | $10 |
|
Trading Brent crude oil on the commodity market
Crude oil is regarded as the ‘mother of all commodities,’ viewed by many economists as the ‘most important commodity in the world,’ because it is still the primary source of energy production (as of November 2022).
It is also the most popular traded commodity in the energy industry.
However, crude oil is a non-renewable energy resource, implying it is a limited resource which cannot be replaced naturally at the rate it is globally consumed.
There are many varieties of crude oil traded on the commodity markets. In order to help traders and speculators to value the quality of the crude oil they are trading, oil benchmarks are used. Oil from different oil fields varies in value based on its quality, its use in different industries, and its location.
Major oil benchmarks
The three major oil benchmarks used in crude oil trading are Dubai/Oman, West Texas Intermediate (WTI), and Brent crude oil.
Dubai/Oman refers to a basket of crude oil from the oil fields of Dubai, Oman, and Abu Dhabi which is traded on the Dubai Mercantile Exchange. It is classified as a somewhat heavier and sour crude oil. Dubai/Oman is used as the key reference for Persian Gulf oil provided to the Asian market.
- West Texas Intermediate (WTI)
WTI is a crude oil of extremely high quality and categorised as a very sweet and very light crude oil, making it ideal for producing gasoline.
It is extracted from oil wells in the United States and transported via pipelines to Cushing Oklahoma, referred to as ‘the pipeline crossroads of the world’ and the most important crude oil storage location in the USA.
WTI is the main oil benchmark for crude oil trading in the United States of America.
Brent crude oil - also referred to as Brent crude or Brent blend - is the most widely used oil benchmark, referenced by about two-thirds of all crude oil contracts around the globe.
Brent blend is actually a blend of different crude oils obtained from oil fields of the Brent system and from the Ninian Central Platform located in the North Sea between the United Kingdom and Norway.
The Brent system lies off the northeast coast of Scotland, halfway between the Shetland Islands and Norway and includes oil fields such as Brent, Cormorant, Hutton, and Thistle.
The Ninian Central Platform is located in the East Shetland Basin.
Brent blend is classified as a sweet crude oil, but not as sweet as WTI, and as a light crude, but not as light as WTI.
It is mostly refined in Northwest Europe.
Ways to trade Brent crude oil
The following are examples of ways to trade Brent crude oil as a commodity. More information about the examples mentioned as well as other methods can be obtained from a commodity broker such as AvaTrade.
A spot contract refers to an agreement that allows a trader to buy or sell a commodity (such as Brent crude) at the current market price, referred to as the spot price. Most spot contracts are settled physically, making it difficult and almost impossible for individuals to trade Brent crude via spot contracts.
An oil futures contract refers to an agreement that stipulates the buying or selling of a specific number of barrels of oil at a predetermined date at a predefined price.
Oil futures contracts for Brent crude are traded on the Intercontinental Exchange (ICE) and the New York Mercantile Exchange (NYMEX) where a Brent Oil futures contract represents 1,000 barrels of Brent crude oil. The contract is financially settled.
Traders/investors can get exposure to Brent crude oil through companies which are involved in the extraction and/or refining of Brent crude.
Factors that drive the price of crude oil as a commodity
Crude oil prices reflect the energy market’s volatility. They also serve as a benchmark for global economic activity.
There are numerous factors that influence the price of crude oil, including the price of Brent crude oil. Factors such as:
- The value of the US dollar. Crude oil prices are mostly quoted in US dollars. Hence, the US dollar is inversely related to the price of crude oil.
- Oil consumers: The level of demand in countries such as China and the USA can affect oil prices negatively or positively.
- Seasonal factors such as hot summers can lead to more activities and higher oil consumption. Also, cold winters can cause consumers to use more oil products for heating of homes and buildings.
- Alternative energy sources: The demand for cleaner, more environmentally friendly energy sources.
- Severe weather events can affect the production at refineries.
- Decisions of OPEC (Organisation of the Petroleum Exporting Countries): For example, the organisation’s decision in November 2022 to curb its supply of crude oil caused the price of all types of crude oil to increase.
- Geopolitical issues of which Russia’s invasion of Ukraine in February 2022 is a classic example. The sanctions subsequently imposed on Russia by numerous countries worsened the situation, causing oil prices to increase considerably.
Uses of Brent crude oil
After its extraction, Brent crude is refined and mainly processed into gasoline, diesel fuel, and middle distillates such as jet fuel, low-sulfur marine fuels, and heating oil.
Interesting facts about crude oil
- Crude oil is traditionally measured in barrels. One barrel of crude oil is equivalent to 42 US gallons, which is about 159 litres in metric terms. In 1866, the 42-gallon barrel was officially adopted in Titusville Pennsylvania, one of the states in the USA.
- The largest oil spill in history happened in the Gulf of Mexico on 20 April 2010. A surge of natural gas burst through the oil drilling rig, Deepwater Horizon, causing the drilling rig to explode and sink. Eleven oil workers were killed and over a period of 87 days, 4 million barrels of oil flowed into the ocean. The leakage was finally stopped on July 15, 2010. This disaster caused major devastation to ecosystems, birds, and ocean life.
- However, oil platforms also create ecosystems by attracting fish and other sea creatures. They also provide a surface for coral, algae, and barnacles to grow.
- It is estimated that about 80 percent of all oil spills are brought on by human error.
Note: This article does not constitute investment, financial or trading advice. Please obtain the advice of a professional and regulated commodity broker before making trading and investment decisions.
