What is Oil trading?    Trading means doing business. The term petroleum trading describes the financial operations associated with commerce in hydrocarbon cargoes. All the major oil companies have trading subsidiaries. Their main objective is to ensure a regular supply of crude oil to their refineries, to meet the oil supply demands of the processing plant at any one time.

The traders’ role The traders’ role is to purchase the oil that is necessary in terms of quality and quantity a little time in advance. But if we talk about selling, we automatically talk also about buying. A skilful trader can quite possibly buy a cargo of oil at a rather low price to quickly resell it at a profit, if others need the cargo more than he does and are ready to pay the price. So, it is not rare for a cargo of oil to change ownership during transport, sometimes several times:

The trader also handles negotiations for the finished products produced by the refineries. And of course, if the company doesn’t need it for its own refineries, he handles the sale of crude oil that it owns. Traders buy and sell cargoes on a real market, organized on a worldwide basis; dealing in quantities of oil which exist physically and which are due to be transported shortly or are even already in transport. These markets are called spot-markets.

So, the trader buys crude to supply a refinery that is going to transform it into petroleum products required by the consumer. Between the date of purchase of the crude and delivery to the consumer of the refinery production from this cargo, several months could have elapsed. And during that period, the crude price could have varied: if it has increased, there is no problem. But if it has gone down, the selling price of the refinery products has also dropped: result, the trader has lost money on the refinery products manufactured from an expensive crude and sold cheaply as a result of a drop in oil prices. To provide protection against this risk, a financial mechanism exists, called “covering”. This operation takes place on a special market called the futures market. The trading operation can generate significant profits. That is the reason for the existence of trading companies independent of the petroleum industry and whose aims are solely financial. These companies operate a little on the spot markets, but above all on the futures markets.

NAFT GmbH ´s trading range is trying to cover the full spectrum from crude oil and other refinery feed stocks to refined products, including LPG, naphtha, mogas (Motor Gasoline), jet fuel, gasoil and fuel oil. NAFT GmbH is an international trader, primarily active in physical oil trading (FOB & CIF) including transportation by vessel and pipeline.

Outlook:

The International Energy Agency estimates that total investment required in the oil and gas sectors over the period 2005 to 2030 will amount to more than $8 trillion. A large portion of these investments will be required to develop new supplies to simply replace ongoing declines in existing volumes. The rest will be needed for additional supplies to meet the increase in demand. Nearly two-thirds of the total energy supply investment will take place in non-OECD countries.

Availability of Resources

Linked to the issue of demand is, of course, the question of resource supply. Here again, an awareness of the realities is important to a constructive debate on the outlook and implications of continued energy use.

The good news is that abundant oil resources are available to meet the projected growth in demand. According to the U.S. Geological Survey the earth was endowed with more than 3 trillion barrels of conventional oil. This estimate has grown steadily over the years as our industry has developed new and more sophisticated technologies to locate and produce these resources.

If we add estimated “frontier” resources, such as heavy oil and shale oil, this total rises to over 4 trillion barrels. Considering we have used 1 trillion barrels of oil in the history of mankind, the outlook for future supply is positive.

But the challenge of meeting future demand is broader than recognizing that the resources are available. They must also be accessible.

For instance, in the United States alone, an estimated 31 billion barrels of recoverable oil and 105 trillion cubic feet of natural gas are currently ruled off-limits.  Many of these restrictions are driven by concerns about the environmental impact of offshore production. 

To be a successful trader we advise our partners to have adequate knowledge in the following subjects:

The fundamental understanding of the trading and operational features within the international oil industry  - from the selection, purchase, shipment and refining of crude oil through to the subsequent selling of the refined products that meet stringent sales specifications

Following topics are essential to reinforce the understanding and to trade in this business:

About chartering an oil tanker to ship crude oil to the refinery or products to a customer, about refining of crude into finish products, Significance of quality and product specifications to the product trader, Select, value and subsequently trade finished products, To write and review contracts, Reviewing ability letters of credit and cargo documents, To operate a contract for the sale or purchase of oil from its inception, through delivery to final payment, How traders identify and lock in the profits of inter-regional arbitrage through hedging

It is essential to know about

International supply/demand: The oil markets, Pricing mechanisms, Crude Oil Valuation and Selection ,Crude oil characterization ,GPW, netback and refiners margin ,Tanker Markets ,Freight and World scale ,Tanker characteristics, Chartering and charter parties, Refining , Distillation ,Upgrading and conversion processes

Oil Trading: *Crude oil, *Naphtha and gasoline, *Jet fuel and distillate, *Fuel oil and heavy feed stocks, *Understanding long and short positions, *Futures, *Hedging and arbitrage, *Introduction to advanced trading instruments, *Product Quality: *Specifications, *Blending, *Component valuation, *Payment and Credit : *Letters of credit, *Banks, *Invoicing, *Nominations and Documents: *Vessel nominations, *Documentary instructions, *Bills of lading, *Letters of indemnity, *Measurement of Quantity and Quality: *Test methods, *Measurement practices, *Independent inspectors, *Losses, *Storage and Stocks, *Stocks and their relevance to the industry, *the nature of storage, *Terminal practices, *Storage agreements