Brent crude oil is crude oil that is drilled in one of the four oil fields in the North Sea, between England, Germany and Scandinavia. It is one of the two major benchmark oils in the world, the other being WTI (West Texas Intermediate) crude. Crude oil is defined as natural, unrefined petroleum that can be refined into thousands of products, known as petrochemicals. The most common uses of refined crude oil include gasoline, diesel fuel, kerosene, heating oil and kerosene.
Because crude oil is a nonrenewable source, and poses many dangers to the environment and world eco-system, in recent years, much progress has been made in finding alternative energy sources – including solar and wind – which are safer and will never run out. As a result, it is difficult to know how much longer crude oil will be considered a critical commodity. However, for now, it certainly is, and many countries are major suppliers, including the United States, Russia, and Saudi Arabia.
Like most commodities, the price of Brent and WTI is driven primarily by supply and demand, and is extremely vulnerable to external factors. If, for example, members of OPEC (Organization of Petroleum Exporting Countries) decide to limit production of oil, the global supply will dwindle, and the price of Brent and WTI will rise. Alternately, when oil-rich countries (OPEC and others) produce excessive amounts of oil, the supply outweighs the demand, and the prices can drop.
While some traders purchase spot contracts on Brent crude (in which ownership of the oil changes hands at the moment of trade, and the price reflects the cost of crude at that moment), it is far more common for traders to purchase futures contracts. With futures contracts, the price agreed upon reflects what both the buyer and seller believe will be the price of Brent crude at a predetermined future date. Those who trade on oil CFDs are essentially predicting how the price of oil will move before the position closes.