Brent Crude Oil Prices Explained

Brent crude oil prices steadied above $80 per barrel as investors’ focus shifted to the U.S. stockpile data. Also, higher interest rates increase borrowing costs for consumers and businesses, reducing oil demand. Adding pressure on the market is the slower-than-expected Chinese economic growth which raised global concern as the country’s (the world’s biggest crude importer) imports continued to trend weaker.

Another market headwind factor is OPEC’s plan to restore some crude production in the last quarter of this year which potentially exerts a downward pressure on Brent crude oil prices. 

Why are Brent crude oil prices fluctuating?

1. OPEC+ Production Restraint

The U.S. Energy Information Administration recorded that about half of all the petroleum and other liquids produced in the world in 2023 came from OPEC+. This means that the global fuel supply largely relies on this organization.

On the other hand, OPEC+ announced its 2.2. million barrels per day production cuts due to the weakening oil demand. Thus, this lower production target affects Brent crude oil prices.

2. Emerging Non-OPEC+ Countries

While most of the global fuel supply comes from OPEC and OPEC+ countries, the number of non-OPEC+ countries producing oil steadily grows. These are Guyana, Brazil, Canada, and Norway.

Additionally, offshore operations in Brazil and Norway are increasing ( particularly in Brazil ) due to the offshore pre-salt reserves and the deployment of new floating production, storage, and offloading vessels.

Overall, this new and emerging supply chain will eventually scale out buyers and further influence Brent crude oil prices.

3. U.S. Dollar

Most commodities are priced according to the U.S. currency. Thus, every other currency is attached to the dollar. This means that its value has a major impact on oil prices.

For instance, a devalued U.S. dollar gives foreign investors more resources to buy and stock crude oil contracts. Conversely, a stronger dollar discourages foreign investment in the commodity. 

4. Technology Advancements

The advent of new extraction techniques such as hydraulic fracturing and horizontal drilling in the United States makes oil production much more streamlined which gives an ample supply of oil that sometimes lowers the price.

Which variables impact the price of Brent crude oil?

• OPEC+ Production Restraint
• Emerging Non-OPEC+ Countries
• U.S. Dollar
• Technology Advancements
• Global Supply and Demand
• Geopolitical Factors

Where does Brent crude oil come from?

Brent is a sweet light crude oil and its price is the benchmark of oil value worldwide. This oil has a low density and low sulfur. Thus, earning its sweet description.

The year 1959 was the discovery of Brent crude oil and commercial exploration started in 1966 which grew further in the 1970s before the OPEC ( the Organization of Petroleum Exporting Countries ) crisis. its oil stability in the North Region and the OPEC turmoil made Brent crude oil beneficial in the world.

Additionally, the Brent oil deposit is in the North Sea bounded by the United Kingdom, Norway, the Netherlands, Germany, France, and Denmark. Its classifications are Forties Blend,  Brent Blend, BFOE Quotation, and Oseberg with active oil fields in Brent, Forties, Oseberg, Ekofisk, and Ninian Systems.

The processing of Brent crude oil begins with the separation of the oil into different fractions. This is done using a process called distillation.

Distillation involves heating the oil to a high temperature which causes the different fractions to vaporize at different rates.

The lighter fractions such as gasoline and jet fuel, vaporize first and are collected at the top of the distillation tower.

The heavier fractions such as diesel fuel and heating oil, vaporize later and are stored at the bottom of the distillation tower.

Here is a more detailed overview of the different steps involved in the processing of Brent crude oil:

1. Desalting – The first step in the processing of Brent crude oil is to remove the salt and other impurities from the oil. Desalting involves washing the oil with water and then adding a chemical that causes the salt and other impurities to separate from the oil.

2. Atmospheric distillation – The next step is to separate the oil into different fractions using atmospheric distillation. Atmospheric distillation involves heating the oil to a high temperature and collecting the different fractions as they vaporize.

3. Vacuum distillation – It is used to separate the heavier fractions that are not vaporized during atmospheric distillation. Vacuum distillation includes heating the oil to a high temperature under vacuum. The vacuum reduces the boiling point of the oil which allows the heavier fractions to vaporize.

4. Cracking – This method breaks down the heavier fractions of oil into lighter fractions. This is done using heat and pressure. Additionally, it is used to produce more gasoline and diesel fuel from Brent crude oil.

5. Reforming – This process changes the molecular structure of naphtha to produce high-octane gasoline. High-octane gasoline is better for car engines and produces fewer emissions.

6. Alkylation – This step combines light olefins to produce high-octane gasoline components. High-octane gasoline components improve the performance of gasoline.

7. Blending – The final step involves blending the different fractions to produce the desired products. For example, gasoline is blended with ethanol and other additives to produce the finished product that is sold at gas stations.

Overall, Brent crude oil producers come from Europe with the United Kingdom in the top spot accounting for 50% – 55% of yearly production. Norway, Denmark, and the Netherlands follow distantly.

What is the future price of Brent crude oil?

Generally, oil prices move along the fine lines between common and current determining price factors. The escalating tension between the U.S. and the Houthis (backed by Iran) will create another trouble in the supply chain as 12% of the global trade passes through the Red Sea every year. Also, the economic performances of top crude oil importers like China, Europe, and the U.S. hold a significant part of its market value.

These are the factors that can initially and immediately shift oil price movement in the market. Additionally, it’s non-renewable and greatly contributes to environmental issues. The longevity of the oil supply hangs in the balance between its sustainability, and economic, and geopolitical stability.

Brent crude oil prices will rise to $79 per barrel by 2030 and by 2040 it will be roughly $84 per barrel. At this time, most oil sources are near depletion, and extracting oil is costly. Most countries as well have shifted to natural gas and renewable energy sources.

Overall, this prediction is an estimate of the combined data and forecast from analysts and is likely to change yearly according to common and situational surging issues.