Brent Crude Oil

Overview

  • Brent Crude oil, extracted from the North Sea, is a sweet light crude oil with less than 0.4% of sulphur and an API gravity of 38 °. It is light because of its relatively low density, and sweet because of its low sulphur content. In fact these are the two main characteristics by which crude oil are classified-sulphur content and density-which the petroleum industry measures by its American Petroleum Institute (API) gravity. . Originally, Brent Crude was produced from the Brent oilfield. The name ‘Brent’ comes from the naming policy of Shell UK Exploration and Production, which originally named all its fields after birds (in this case the brent goose).
  • Essentially, Brent crude is a mix of crude oil from 15 different oil fields in the North Sea and comprises of Brent Blend, Forties Blend, Oseberg and Ekofisk crudes. The Brent Crude serves as a global benchmark and is used to determine prices of European and West African crudes.

Categories of Crude oil

  • West Texas Intermediate (WTI) also known as Texas Light Sweet is the benchmark for oil prices in the Unites States, the world’s top oil consumer. It has an API gravity of approximately 39 and a sulphur content of 0.24% and therefore rated as light sweet oil. Cushing, Oklahoma, a small and remote place with a population of 7286 has been a major trading hub and price settlement point for WTI. WTI crude is greatly valued for the fact that it is of such premium quality and can be refined into more barrels of gasoline than most other crudes in the American refineries and piped across the country for consumption.
  • Brent Crude Oil stands as a benchmark for Europe and West Africa
  • Meanwhile OPEC basket consists of seven different crude oils from Algeria, Saudi Arabia, Indonesia, Nigeria, ‘Dubai’, Venezuela and Mexico. Dubai crude serves as the benchmark crude for Asia.
  • Because OPEC crude has a much higher percentage of sulphur and far lower API gravity, making them heavier and sour, the prices of OPEC oil are normally consistently lower than Brent or WTI. Currently the Brent crude oil is at a $1-2 per barrel premium to WTI crude oil, although on a daily basis the pricing relationships between these can vary greatly.
  • OPEC has identified China and India as their primary buyer of oil in Asia. In 2015, India imported 59% of its crude from Middle East whereas West Africa and South and Central America imported 17% and 15% respectively.

Crude Oil Units (average gravity)

  • 1 US barrel = 42 US gallons.
  • 1 US barrel = 158.98 litres.
  • 1 tonne = 7.33 barrels .
  • 1 short ton = 6.65 barrels .

Note: barrels per tonne vary from origin to origin.

Given the high volatility in oil prices, risk management techniques are of utmost importance for market participants, such as producers, marketers, processors, and industries. Amidst uncertainty, modern techniques and strategies, including market-based risk management financial instruments like ‘Brent Crude Oil Futures’, offered on the MCX platform can improve efficiencies and consolidate competitiveness through price risk management.

Global Scenario

  • Oil accounts for nearly 33 per cent of the world's total energy demand.
  • The world consumed about 95 million bbl/day of oil in 2015
  • United States (19.39 million bbl/day), followed by China (11.96million bbl/day), India (4.159 million bbl/day) and Japan (4.15 million bbl/day) are the top oil consuming countries.
  • Global proved oil reserves in 2015 fell by 2.4 billion barrels (-0.1%) to 1697.6 billion barrels. Reserves have nonetheless increased by 24%, or 320 billion barrels, over the past decade; and are sufficient to meet 50 years of global production

OPEC fact sheet

OPEC stands for 'Organization of Petroleum Exporting Countries'. It is an organization of eleven developing countries that are heavily dependent on oil revenues as their main source of income. The current Members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

  • OPEC controls almost 40 percent of the world's crude oil.
  • It accounts for about 75 per cent of the world's proven oil reserves.
  • Its exports represent 55 per cent of the oil traded internationally.

Indian Scenario

  • India ranks among the top 10 largest oil-consuming countries. 
  • Oil accounts for about 30 per cent of India's total energy consumption. The country's total oil consumption is about 4.159 million barrels per day. India imports about 70 per cent of its total oil consumption and it makes no exports.  
  • India ranks among the top 10 largest oil-consuming countries. India faces a large supply deficit; it imports about 70% of its total oil consumption and makes no exports. The oil reserves of the country are located primarily in Mumbai High, Upper Assam, Cambay, and the Krishna-Godavari and Cauvery basins.
  • India's rough production was only 0.8 million barrels per day.
  • The estimated reserve of crude oil in India as on 31.03.2015 stood at 763.48 million tonne (MT). Geographical distribution of Crude oil indicates that the maximum reserves are in the Western Offshore (43.67%) followed by Assam (22.19%)
  • The refining capacity in the country stood at 215 MMT as on 31-3-2015.
  • Government has permitted foreign participation in oil exploration, an activity restricted earlier to state-owned entities. In 2002, the government officially ended the administered pricing mechanism (APM). Now crude price has a high correlation with the international prices. Even the prices of crude bi-products are allowed to vary +/- 10%, keeping in line with international crude prices, subject to certain government norms.
  • Disinvestment/restructuring of public sector units and complete deregulation of Indian retail petroleum products sector is under way.

Exchanges dealing in Crude Futures

  • The CME Group (CME – NYMEX Division).
  • The Intercontinental Exchange Inc. (ICE).
  • The Tokyo Commodity Exchange (TOCOM).

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