Brent Oil and WTI: What Investors Need to Know

Brent Oil is one of the most important crude oil types that shape the energy sector in the world. It is called “Brent” because it is extracted from the oil fields located between the coasts of the United Kingdom and Norway in the North Sea. Brent oil takes its name from the first letters of five geological formations named Broom, Rannoch, Etive, Ness and Tarbert, discovered in 1971 and located off the coast of Scotland. It is classified as “light” and “sweet” in oil classification. Being light indicates that its density is low and its API (American Petroleum Institute) degree is high; while being sweet indicates that its sulfur content is relatively low.

These features facilitate refining processes and increase the quality of the fuel produced. Therefore, Brent Oil is preferred in the production of high-demand products such as gasoline, diesel and aviation fuel. Especially in international oil trade, many contracts and financial derivative products are created by referencing Brent prices. Thus, investors have the opportunity to trade on an indicator from which they can obtain important signals not only about oil companies but also about the global economy.

In global markets, oil is known as a “benchmark” or “reference oil” in terms of pricing. One of the main reasons is the logistical advantages provided by its geographical location and the ease of access to world markets. North Sea production can be transported directly to the European market by tankers and from there to Asia and Africa. In addition, Brent Oil is a highly liquid instrument in futures markets. Both financial institutions and energy companies use these futures for risk management and price discovery. Therefore, price movements in Brent help shape investment decisions in many areas, from foreign exchange markets to bond markets, outside the energy sector.

WTI (West Texas Intermediate) is another type of oil that is considered a “benchmark” worldwide. These two types of oil have different characteristics due to their geographical locations. WTI is a type of oil extracted from the inner regions of the USA, such as Texas and Oklahoma. Therefore, it is generally shipped to the US domestic market via land pipelines. In terms of characteristics, WTI is often considered a bit “sweeter” than Brent and has a higher API rating.

However, the price of WTI is deeply affected by the supply-demand dynamics in the American domestic market. For example, the occupancy rate of storage capacity in the US or capacity problems in pipelines often cause fluctuations in WTI prices. Brent Oil is more sensitive to global demand changes and especially to the expectations of the European and Asian markets because it covers a wider geography. For this reason, while Brent remains the most widely used indicator in the pricing of “world oil”; WTI mainly serves as a reference in the US market.

The Role of Oil in Global Markets

Brent Oil is one of the most important anchors in international energy markets. Many countries base their oil import or export contracts on Brent prices. This pricing model is shaped by adding a certain premium or discount according to the quality differences of crude oil. For example, some types of oil in Africa are priced as “Brent + X dollars” if their quality is close to Brent, while those with a higher sulfur content are valued at a discount such as “Brent – ​​Y dollars”. Thus, Brent forms the common language of global oil trade.

The majority of contracts in energy markets are made on futures exchanges (ICE – Intercontinental Exchange (NYSE:ICE)) or over-the-counter markets according to the Brent reference. In this way, both producer countries and refineries try to achieve predictability and price stability. In addition, companies operating in the aviation, transportation and logistics sectors protect (hedge) their fuel costs by following Brent contracts. In addition, many investment funds and hedge funds try to make short-term profits by taking speculative positions on Brent Oil. This intense interest keeps Brent’s liquidity constantly high and ensures that prices are updated instantly.

 Factors Affecting Oil Prices

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The supply-demand balance has always been the most important determinant factor in Brent Oil prices. In particular, the amount of production from the Middle East and the decisions of OPEC+ (OPEC countries and allied producers such as Russia) can directly affect prices. For example, a restriction or unexpected increase in production quotas creates a “supply shock” in the market and prices react rapidly upwards or downwards. Similarly, economic growth trends determine the course of oil demand. Rapid industrial growth in China, India and Southeast Asian countries has historically increased Brent demand, causing prices to rise.

Macroeconomic data and global geopolitical tensions also put pressure on Brent prices. For example, increases in the value of the US Dollar can reduce demand as it means oil becomes more expensive in terms of other currencies. Slowdowns in the Chinese or European economies can also result in lower global energy consumption, easing upward pressure on Brent. Conversely, unexpected geopolitical crises—such as the current military interventions—can send prices skyrocketing within weeks. Considering all these factors, the Brent Oil market requires a constant flow of news and analysis of economic indicators.

The oil market has historically been extremely sensitive to geopolitical fluctuations. Brent Oil is also directly affected by global conflicts, embargoes, terrorist attacks or international political crises. For example, if tensions in the Strait of Hormuz or political instability in North Africa pose a threat to the safe passage of tankers, the market may perceive a sudden supply shortage and push Brent prices up. As seen in the example of the Russia-Ukraine crisis, the closure or restriction of energy export channels can increase Europe’s demand for Brent oil, causing prices to fluctuate rapidly.

What Happened to Oil Prices in 2020

The impact of the COVID-19 pandemic hammered the oil industry in 2020, forcing U.S. oil prices to go negative for the first time on record. In a matter of hours on April 20, the May 2020 contract futures price for West Texas Intermediate (WTI) plummeted from $18 a barrel to around -$37 a barrel. Oil producers were faced with a glut of crude oil that left them scrambling to find space to store the oversupply. Brent crude oil prices also tumbled, closing at $9.12 a barrel on April 21, a far cry from the $70 a barrel that crude oil fetched at the beginning of the year. 

Oil usage in European Countries, Asia and US

A significant portion of refineries in Europe are designed to process Brent quality crude oil. Easy accessibility by sea tankers in this geography keeps transportation costs at a relatively low level. This situation leads especially to Northern and Western European countries shaping their energy strategies around Brent. European Union countries attach great importance to the production volume and price trends in Brent fields while forming their energy supply security policies. In addition, crude oil types coming from North Africa are a suitable alternative for European refineries since their quality is similar to Brent. 

Rapidly developing economies, especially China and India, increase their energy consumption every year. This causes Asian refineries to prefer crude oil types suitable for Brent. In addition, developed economies such as Japan and South Korea can focus on European crude oil in their refineries. Therefore, in addition to oil from the Middle East, Brent can also enter the Asian market quickly, especially when competitive prices are offered in the spot market. This flow, which occurs through tanker transportation, strengthens Brent's global liquidity and price-setting power. 

The U.S. exports more petroleum products than it imports. In 2023, the U.S. imported about 8.51 million barrels per day of petroleum products from 86 countries. The same year, it exported about 10.15 million barrels of petroleum to 173 countries and three U.S. territories. West Texas Intermediate is a high-quality crude oil sourced in West Texas. As one of the world's foremost sources of crude oil, WTI is a benchmark for the U.S. oil industry and investors. When you hear a reference to crude oil prices in a business report, it's the price of West Texas Intermediate that is being quoted.

Technical Analysis

XBRUSD, 4H

The price continues to decline in the 4-hour time series. Geopolitical, political and military developments support the increases in oil prices. MACD supports bullish signals. If the price continues to rise, the target will be 66.50. Otherwise the target is 62.00

 XBRUSD, Daily

 In the daily time frames, we can see that the price is forming an inverted flag formation in a downtrend. The price will inevitably turn back from the resistance level. The MACD supports the declines.

 XBRUSD, Weekly

In the weekly time frames, the price started to rise back from the Fibonacci 61.8% level after strong declines. In this case, we can argue that the global trend is still in an uptrend. However, technical indicators and US President Trump's pressure on oil prices signal a decline in prices.

Conclusion

Brent Oil, derived from the North Sea, is a key benchmark in global energy markets. Its light and sweet characteristics make it a highly preferred crude oil type for refining high-demand products like gasoline, diesel, and aviation fuel. The name "Brent" originates from five geological formations discovered in 1971.

 Brent's geographical location, near Europe and accessible by sea tankers, gives it an advantageous position in global trade. It acts as the reference price for many oil contracts, shaping market trends and influencing investment decisions across various sectors. Due to its liquidity and wide market use, Brent oil plays a crucial role in not only energy markets but also in global economics, including foreign exchange, bonds, and even political strategy.

The supply-demand balance, geopolitical factors, and economic trends like OPEC+ production decisions and growth in key regions like China, India, and Southeast Asia, all directly affect Brent oil prices. While WTI (West Texas Intermediate) serves as a reference primarily in the U.S., Brent is considered the global benchmark, with its prices heavily influenced by European and Asian market demands. The COVID-19 pandemic in 2020 notably disrupted oil prices, showing how vulnerable oil prices are to sudden shifts in global demand.

 As the world continues to rely on oil, particularly Brent oil, it remains at the core of energy strategies, economic policies, and global investment markets.

Written By: FBS