Investors Trading Academy: Glossary of Financial Terms

Word of the Day: Brent Oil

Introduction to Crude Oil

• Crude oil: Thick, unprocessed liquid extracted from below the earth.
• Types:
  • Low-sulfur ("sweet") crude: Easier to refine into gasoline and diesel fuel.
  • Low-density ("light") crude: Generally more favorable for refining.

Importance of Oil Source

• The origin of the oil affects its desirability and pricing.
• Transportation costs:
  • Sea-extracted oil is often cheaper to transport than land-based oil, which relies on pipelines.

Brent Crude Oil

• Discovered in the early 1960s.
• Primarily sourced by the UK, Norway, Denmark, the Netherlands, and Germany.
• Characteristics:
  • Not as light or sweet as West Texas Intermediate (WTI) oil.
  • More ubiquitous and often used as a pricing benchmark.

Comparison with West Texas Intermediate (WTI)

• Brent Crude:
  • Used globally as a benchmark.
  • Produced near the sea, reducing transportation costs.
• WTI:
  • Preferred benchmark in the United States.
  • Landlocked production increases transportation costs.

Historical Pricing Trends

• Brent Crude vs. WTI:
  • Historically, Brent Crude was cheaper than WTI.
  • Recent advancements in oil drilling and fracking have made WTI cheaper than Brent Crude.