What Is Brent Blend?

Brent blend is the name of one of two internationally-recognized types of crude oil that are used as benchmarks for prices of crude oil. Brent Blend comes from the North Sea and is considered a light, sweet crude oil. Brent blend is more than half of the crude oil traded internationally, so it is a logical choice to be the benchmark for crude oil pricing.

Brent blend may also go simply by Brent oil and is the same as North Sea Brent Crude and London Brent.

Key Takeaways

  • Brent is a blend of crude oil recovered from the North Sea in the early 1960s., whose price is used as a benchmark for the commodity's prices.
  • It is a light, sweet blend that can be refined easily into petrol and associated products.
  • The other main crude oil benchmark used in world markets is West Texas Intermediate (WTI)

Understanding Brent Blend

Brent blend is a blend of crude oil extracted from oilfields in the North Sea between the United Kingdom and Norway. It is an industry standard because it is "light," meaning not overly dense, and "sweet," meaning it's low in sulfur content. It is used as a benchmark for pricing crude oil, along with West Texas Intermediate (WTI) crude oil.

Brent blend is the benchmark for most of the crude oil from the Atlantic basin and is the benchmark used to price two-thirds of the crude oil traded internationally.

Brent blend originally came from the Brent Oilfield off the coast of Scotland. At the time, the naming standards for the UK oil industry were to name oilfields in order of development, alphabetically, after birds found in the region. The Brent Oilfield was the second developed, so it was named after a bird that began with the second letter of the alphabet, the Brent goose.

Brent blend and WTI are the two main benchmark crude oils. A third, called Shanghai crude futures, was launched by China in 2018 to create an Asian benchmark for oil prices. Brent is less light and less sweet than is WTI. Brent makes up the majority of the crude oil traded internationally, so it is more commonly used as a benchmark than is WTI. Brent has remained the dominant benchmark for crude prices but its position may be under threat due to depleting reserves in the North Sea and the growing crude output in the United States since 2015.

Brent blend is not traded directly in real time, but brent futures are traded on the Intercontinental Exchange (ICE) as well as the New York Mercantile Exchange (NYMEX,) with delivery dates for all 12 months of the year.

History of North Sea Area Crude Oil

This large North Sea deposit is bounded by the United Kingdom, Norway, the Netherlands, Germany, France, Denmark, and Belgium. Active oil fields include the Brent, Forties, Oseberg, Ekofisk, and Ninian systems.

Oil was discovered in the area in 1859, but it was not until 1966 that commercial exploration of the fields was undertaken. Commercial exploration grew in the 1970s, just before the Organization of Petroleum Exporting Countries  (OPEC) oil crisis. The first pipeline transportation shortly after 1975. The high quality of the oil, coupled with regional stability of the North Sea area and OPEC oil embargo fears, made the cost of production of the North Sea Brent crude beneficial.

Brent Index

Investors typically trade Brent-related commodity contracts either as a hedge or on a speculative basis. Those taking hedge positions include companies that produce and market crude oil, as well as refineries or other entities that process the oil. Hedging strategies for firms in fuel-dependent industries, such as airlines, may also take advantage of Brent-related contracts.

Others may use an index that is based on spot Brent. The Brent Index expresses the cash settlement price for the Brent Future on the ICE exchange. The Brent Index is the average price of trading 600,000 barrels on the 25-day Brent Blend, Forties, Oseberg, Ekofisk (BFOE) market. The index is calculated as the average of the following:

  1. The weighted average of first-month cargo trades in the BFOE market.
  2. The weighted average of second-month cargo trades in the BFOE market plus or minus a straight, non-weighted average of the spread between the first and second month cargo trades.
  3. A straight, non-weighted average of "designated assessments" as published officially in the media.