5 Main factors that influence the Brent Oil price
What is the Brent Oil price today?
Brent crude, also known as London Brent, North Sea Oil, Brent Blend, and Brent petroleum, is a type of crude oil derived from the North Sea. Due to its low sulphur level, it is a sweet crude oil that is light, somewhat heavier than WTI, and perfect for refined gasoline and diesel fuel.
Over 50% of the crude oil traded internationally is in the form of brent. Crude oil sold in every country uses the Brent mix as a benchmark price. Through the ICE futures exchange, it is electronically traded.
As opposed to the price of $84 per barrel in October 2022, Brent oil price today, November 2022, was $84 per barrel. The price has increased by 15.98% in the last 12 months.
The global oil supply and demand balance
Supply and demand are economic fundamentals. Price should rise in line with rising demand (or falling supply). Prices should fall as demand declines (or supply rises). In reality, the oil futures market determines the oil price today as we know it.
The right to buy oil by the barrel at a specific price on a set day in the future is granted by a legally enforceable contract known as an oil futures contract. Both the buyer and the seller are required, under a futures contract, to complete their respective halves of the deal by the deadline.
The level of oil storage in OECD countries
The United States, many of Europe, and other developed nations make up the Organisation for Economic Cooperation and Development (OECD). These developed economies consume more oil than non-OECD nations, accounting for 53% of global oil consumption in 2010, but with a significantly slower rate of expansion.
Between 2000 and 2010, oil consumption in OECD countries decreased, whereas it increased by 40% in non-OECD countries during the same period.
The links between oil prices, economic growth, and oil consumption depend on the economic structure of each nation. Per capita, automobile ownership tends to be higher in developed nations. Because of this, the transportation sector in OECD nations typically accounts for a higher proportion of overall oil consumption than in non-OECD nations; it is also more developed and has a slower growth rate.
Thus, the total amount of oil consumed in OECD countries is significantly influenced by economic factors and regulations that affect the movement of people and products. Many OECD nations have higher gasoline taxes and regulations to boost the use of biofuels and improve the fuel efficiency of new automobiles. Even during periods of rapid economic expansion, this tends to restrain the growth in oil consumption.
How will OPEC respond to the falling Brent oil price?
One of the most significant oil benchmarks, Brent Crude, is used to price at least two-thirds of the traded crude oil supplies in the world. The West Texas Intermediate standard is the other often used benchmark (WTI).
The benchmark price used by the Organisation of Petroleum Exporting Countries (OPEC) is Brent Crude. The 14 oil-producing nations that make up OPEC are primarily in charge of determining oil prices.
When the demand for oil declines, they keep prices high by cutting back on supplies. The company can also reduce prices by supplying the market with more oil.
The US exchange rate
Since 2002, there has been a noticeable tightening of the inverse link between the price of Brent crude oil, traded in US dollars, and the dollar exchange rate. The steadily growing oil price has been accompanied by a decline in the dollar’s value.
This trend peaked in 2008 when the average monthly price of Brent oil reached an all-time high of USD 134 per barrel, and the effective exchange rate of the dollar sank to a historical low in March (near USD 1.6 to the euro). Similar circumstances have been seen in recent months when the rise in oil prices has resumed alongside a decline in the value of the US dollar.
We calculate that since 2005, a decline in the effective exchange rate of the dollar of 1% has, on average, been accompanied by a rise in the price of Brent oil of 2.1%. This estimate is based on a simple regression equation that includes other relevant factors underlying Brent oil price movements, such as growth in industrial production in OECD countries, actual interest rates, oil inventories, and the use rate of oil refineries in the USA.
Due to the negative correlation between the price of Brent crude oil and the dollar exchange rate, “non-dollar” economies like the Czech Republic have been less affected by sudden changes in the price of Brent oil.
The issue of producer cartels is another factor influencing the Brent oil Price. The Organisation of the Petroleum Exporting Countries (OPEC), which is made up of 13 nations, including Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, and Venezuela, is probably the single most significant factor influencing oil prices. OPEC collectively controls 40% of the world’s oil supply.
By limiting production, OPEC could theoretically drive-up prices and reap higher profits than if each of its member nations had sold on the global market at the going rate.
The U.S. Energy Information Administration claims that OPEC member nations frequently exceed their quotas, selling a few million additional barrels.
The inability of OPEC to, as its goal reads, “maintain the stabilisation of oil markets to provide an efficient, economical, and regular supply of petroleum to customers” is growing as non-members Canada, China, Russia, and the United States increase their own output.