As commodities are one of the biggest sources of foreign exchange for any country and this is no secret to anyone. Among many of them, oil has attracted a lot of attention. Especially as it is an important resource to produce raw material for various products and be a source of energy. However, there is much doubt about the Brent oil and the WTI oil, Is not it?
There are several types of oil traded on the market, let's get to know them and highlight their differences, see the list of contents that you will find below:
- What is Brent Oil
- What is WTI Oil
- How to invest in oil?
- Is investing in oil worth it?
- Why pay attention to oil?
- Production in Saudi Arabia
- Why are Brent and WTI priced differently?
In addition to those mentioned above: Brent and WTI, there is also the Dubai Crude, a heavier type of oil from the Middle East. However, the most traded on the Brazilian stock exchange are Brent and WTI (West Texas Intermediate).
Brent oil
O Brent oil it's an oil lighter, traded on the London Stock Exchange with production offshore Northern Europe and Asia.
It is used as a reference price in the world, that is, when you hear or read news about the price of a barrel of oil, Brent is the most quoted.
Because it is initially extracted from a Shell oil platform called Brent, it has that name.
WTI Oil
Already WTI oil (West Texas Intermediate) is a more heavy, produced in the United States, especially in the region of Texas, Louisiana and North Dakota.
It tends to be a little more expensive than the Brent oil, for being heavier and more difficult to refine, and for having a somewhat superior quality. What's more, it has a high cost for extraction.
How to invest in oil?
At B3, it is possible to trade oil through shares in oil companies, futures contracts for commodities and BDRs from international oil companies.
To invest in oil companies, it is essential to know the type of oil that the oil company is related to.
Petrobras shares (PETR4 and PETR3) are correlated with Brent oil. That is, the price of this oil directly influences the company's actions. 3R Petróleo (RRRP3) and PetroRio (PRIO3) are assets also correlated with the Brent oil.
The oil futures market is also a way to invest in commodity.
to invest in WTI oil, you have to put the WTI ticker + the letter of the month + the two digits of the contract expiration year, following the month table below:
The BDR of Exxon Mobil (EXXO34), an American oil company, also has a strong correlation with WTI oil.
Despite registering an annual loss of 2020 billion in 22, Exxon is the fourth largest oil company in the world, according to Exame magazine.
Other oil company BDRs are Sinopec (C1HI34), PetroChina (PTCH34), Chevron (CHVX34) and Shell (RDSA3).
Is investing in oil worth it?
Why pay attention to oil?
The diversification in dollar products, the super cycle of commodities and the Chinese five-year plan are other determining factors for oil assets to take advantage of the scenario.
And during the US presidential elections in 2020, Biden paid attention to greater regulation of the export of WTI oil, aiming to contain the advances of global warming.
With Biden's election, even if it takes a few years for these measures to materialize, the threat of the impact of exports inevitably generates pressure on the futures market.
Production in Saudi Arabia
Na OPEC, the battle between Russia and Saudi Arabia has been going on for a few years now.
The two largest oil producers in the world entered a price war within the Organization of Petroleum Exporters that dropped Brent by 30% in March 2020, one of the biggest drops since the Gulf War in 1991.
With the excessive increase in production in Saudi Arabia and the suspicion of the offer of barrels of Brent at a 20% discount by the large exporter in the Middle East, Russia demanded regulation from OPEC.
In response, the organization defined that there were production cuts that ended up resulting in a high price of Brent oil.
The movement presents an asymmetry within supply and demand, since lighter and cheaper oil began, from 2021, to have an upward movement as a result of production control.
In addition, as a result of the recession caused by the new coronavirus crisis, many oil companies Brent oil and WTI decreased their CAPEX. In other words, the capital available for spending on capital goods and facilities is reduced.
By reducing all expenditure on new technologies and new machines, the probability of finding new oil reserves becomes less and less.
For this reason, the low budgets allocated for exploration mean that the possibility of supply is small, but the demand remains the same.
Why are Brent and WTI priced differently?
Since the 80s, WTI and Brent have traded at nearly the same price. It has happened that WTI was more expensive than Brent. However, currently WTI is priced lower than Brent: the difference varies between $10 and $20 a barrel.
Prices especially depend on the cost of production and transportation.
O Brent oil it is produced close to the sea, so transport costs are significantly lower.
Enquanto or WTI oil it is produced in continental areas, which implies infrastructure problems that make it difficult for North American production to flow to the market, and ends up raising transport costs.
Brent has a lower quality than WTI, however, it has become an oil standard and has a high price due to more reliable exports.
Another important factor to consider are geopolitical problems: tensions in the Middle East are what weigh the most on oil. It is known that when the supply of an asset decreases, prices rise.
West Texas Intermediate is less affected because it hails from the continental United States.
The price of WTI is formed by crude oil inventories. As the amount goes up, WTI goes down. If the amount of inventory goes down, WTI goes up. In other words, when demand increases, prices rise.
