Fuel from Fossils:
Harvested from the remains of living organisms that once roamed the Earth, fossil fuel has been around for centuries providing a source of power for the people. The most common form of fossil fuel harvested at the time was coal. The discovery of oil would further revolutionize the already evolving industry.
The advent of the industrial revolution saw the usage of power in the form of railways and steamships this era also saw the birth of a fuel source that replaced coal, oil. The discovery of this new fuel source changed the way humans lived and has become in demand thanks to the rise of newly invented machinery that also require oil as a fuel source.
Enter Brent, Benchmark Oil:
Brent Blend/Crude/Oil is classified as benchmark oil and one of the three primary benchmark oils along with Dubai Crude and West Texas Intermediate (WTI), meaning that this type of oil serves as the reference price for those who sell and buy crude oil in the market. Brent blend can often be found in parts of the North Sea which is just off the coast of both the United Kingdom and Norway. It also encompasses half of the world’s globally traded supply of crude oil, because of this it is the go-to type of oil to be chosen as a benchmark for crude oil by traders.
Today, the term “Brent” really makes a nod to the oil from four different fields located in the North Sea namely; Brent, Ekofisk, Forties, and Oseberg. The type of crude collected form this region has a more light and sweeter texture thus making it ideal when used to refine diesel fuel, gas, and other products that are in-demand. Thanks to the supply’s nature of being water-borne it is also easily transported to vast locations.
Part of Futures:
Brent Blend is part of oil’s own future, which ties investors to a specific crude benchmark. By using futures, buyers are able to lock in on the price of their chosen crude several months or even years in advance. Should the price of their chosen crude greatly rise, the buyer would be better off using their futures contract. While some futures are settled with the use of cash, some will allow for the commodity to be physically delivered.
Aside from futures, those participating in the market can invest in options that are linked to their desired crude benchmark. These options are also help investors by ease the price risk that comes with it. If the value of a desired crude marker steeply rises, the owner of the call option will have the right, but not the duty, to buy a precise number of barrels at a pre-determined price.
With this being said, the market of crude varies greatly, with the quality and location of the oil creates a major impact on the price.