Investors can monitor the price of a certain oil type by following the benchmarks that specify the origin of the commodity. The usage of the commodity is determined by its origin. The standard for the light oil market in Europe, Africa, and the Middle East is Brent Crude, which comes from oil resources in the North Sea between the Shetland Islands and Norway. This crude is sourced from oil fields in the North Sea. The West Texas Intermediate price is used as a standard for determining prices in the light oil market in the United States. This price comes from oil fields in the United States.
Brent Crude
Brent Crude is the most common crude oil, and it is used as the benchmark for pricing the vast majority of oils. This accounts for around two-thirds of all oil prices. Because Brent Crude is produced in close proximity to the ocean, transportation expenses are greatly reduced. On the other hand, West Texas Intermediate is produced in landlocked regions, making transportation expenses more onerous.
The Organization of the Petroleum Exporting Governments, often known as OPEC, controls the majority of oil production and delivery and, as a result, is frequently in a position to dictate prices not just for oil providers but also for countries. As a result of the fact that the majority of countries base their budgets on oil prices, OPEC is seen as a dominant geopolitical power.
West Texas Intermediate (WTI)
The West Texas Intermediate is the United States' most widely used measurement standard and price model. In addition, it has been described as having a "sweeter" and "lighter" flavor than Brent. The price of West Texas Intermediate (WTI) crude oil is now below that of Brent. On August 31, 2021, the price of a barrel of WTI was around $68.50, while the price of a barrel of Brent was $72.85.
WTI vs. Brent Crude
As a result of developments in oil drilling and fracking, the price of West Texas Intermediate has been trending toward being more affordable than the price of Brent Crude oil. Before this, the price of Brent Crude was often lower than the price of West Texas Crude. This event has been nicknamed the American shale revolution, and as a result of increasing production, the price of oil dropped from more than $100 to less than $50 during the years 2014 and 2015.
The price of oil is a significant component in determining the overall health of the energy industry. It is also one of the most actively traded commodities since its value is affected by almost every important event worldwide. Geopolitical unrest is another reason that might lead to big discrepancies in the price of Brent Crude and West Texas Intermediate. They spread balloons at times of crisis because increased prices of Brent Crude are caused by increased political unpredictability. Because it is headquartered in landlocked locations in the United States, West Texas Intermediate is less influenced by the current situation.
Price Performance
The rise in price volatility seen so far in 2022 is reflected in the graph comparing Brent and WTI crude oil prices. According to the market's price history, the upward trend in the market started in December.
The price was driven up by several factors, including rising demand amid cooler-than-usual temperatures and a recovery in economic activity around the world; a potential shortfall in supply; and geopolitical concerns, such as ongoing nuclear talks between the United States and Iran and Russia invasion of Ukraine.
Concerns over the equilibrium between supply and demand for oil drove up the price of a barrel of petroleum from the $60 range in December 2021 to the $90 level in the middle of February. After the Russian invasion of Ukraine on February 24, 2022, the dollar's market value shot up to over $100.
As a direct result of the announcement that US President Joe Biden made about a restriction on the importation of fossil fuels from Russia, the price of Brent hit a high of $134.91 on March 8, while the price of WTI increased to $123.70.
Forecast for the price of Brent oil: 2022 and 2023
Because there are so many variables at play, the price predictions that experts have set for Brent oil range anywhere from $82 to $185, depending on the period. "In expectation of a rebound in global commodities demand and of a repricing in supply risk premia," commodity traders at TD Securities in Canada have resumed a long position on Brent crude oil.
Earlier, at the beginning of April, they had terminated their long positions "to reflect an easing in our real-time assessment of energy supply concerns connected to huge Chinese lockdowns and to the synchronized SPR release."
