How to Invest in Brent Oil
Brent Crude Oil is the benchmark for oil prices in the EMEA region and for roughly two-thirds of the global oil trade. Brent is a sweet crude oil although it is more sour than its American counterpart WTI crude. As a result, it is suitable for production of gasoline and middle distillates such as kerosene and diesel.
Crude oil is used in a variety of products that are crucial to everyday modern life. However, ‘crude’ oil is unprocessed and generally comes right out of the ground/ocean and has minimal uses until it is processed into a finished product such as gasoline.
Investors looking to invest directly in Brent crude have a limited number of options. While there are heavily traded futures contracts available for the product there are currently no stocks or equity ETFs that invest in companies that produce Brent crude although oil firms that do a lot of production in the North Sea, such as British and Norwegian firms could be a decent auxiliary play. There are, however, a number of ETP products that offer exposure to the commodity\’s futures contracts either in a basket or pure-play form.
Ways to Invest in Brent Oil
There are 3 ways to invest in Brent Oil: ETFs, Futures, and Stocks. Click on the tabs below to learn more about each alternative.
What are Brent Oil ETFs?
Investors looking to gain exposure to Brent oil can do so through exchange-traded products that offer relatively low costs, low maintenance, and complete transparency. For U.S. investors, the United States Brent Oil Fund (BNO) is the best option for gaining access to this brand of crude. BNO invests primarily in front month futures contracts, rolling exposure on a regular basis as maturity approaches. So investors should be aware that this ETF will not replicate movements in spot Brent prices, but rather the returns available from a futures-based strategy.
It is also important to note that because BNO is structured as a limited partnership, investors in this ETF will get a K-1 at the end of the year. That does not necessarily bring any adverse tax consequences, but may make administration a bit more time consuming.
What are Brent Oil Futures?
U.S. investors seeking exposure to Brent oil prices have the option of utilizing futures contracts. There are multiple Brent oil futures traded on the NYMEX, including the Brent Crude Oil Last Day Financial Futures and Brent Crude Oil Penultimate Financial Futures. Both contracts represent 1,000 barrels, and utilize a floating price equal to the ICE Brent Crude Oil Index price as published one day after the final trading day of the contract month.
Brent futures also trade on the ICE, where the contract is a deliverable contract based on EFP delivery with an option to cash settle. Those contracts are listed for a maximum of 72 consecutive months, with 6 contract months comprising of June and December contracts listed for an additional three calendar years. Twelve additional contract months will be added each year on the expiry of the prompt December contract month.
How to Buy Brent Oil Stocks
Investors have the option of achieving exposure to prices of energy commodities by buying stocks of companies engaged in the extraction, refining, and sale of oil. Because Brent oil is used widely in Europe and other international markets, investors seeking exposure should gravitate towards companies that have significant international operations. However, even oil companies listed or headquartered in the U.S. tend to generate substantial portions of their revenues from international operations. There are a number of stocks that can provide indirect exposure to Brent oil prices, including BP, ExxonMobil, Total, Royal Dutch Shell, and ConocoPhillips.
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