We currently live in an age where we rely very heavily on the oil trading industry. It not only fuels the majority of the world’s transport but is used in the supply chain of countless of products we interact with in our daily lives from plastics and medicines to paints and detergents.
Redstone Commodity Search has a strong network in and deep understanding of the crude oil industry and has completed mandates from in the Middle East, Europe, Asia and even the Caribbean. Recent positions that our energy team has been assisted in include:
- Refinery Asset Trader, Netherlands
- Oil Products Operator, Switzerland
- Head Oil Derivatives Trader, United Kingdom
- Middle Distillates Trader, Singapore
- Fuel Oil Trader, Japan
- Oil Market Risk Analyst, United Kingdom
- East Africa LPG Trader, Dubai
- Head Legal Counsel, Singapore
What is Crude Oil?
Crude oil, also known as petroleum, is a non-renewable liquid resource which is formed and trapped under the earth’s surface. It consists of the remains of organic material which has been subject to millions of years of increased temperature and pressure. Variations in the composition of organic material, temperature, and pressure result in different mixtures of crude oil which affects the viscosity, weight and colour.
Once large quantities of crude oil have been discovered in areas known as reservoirs, companies embark on drilling to facilitate the extraction of the crude oil via oil wells. Relatively speaking, of all the oil products, crude oil itself is not of a particularly high value.
Crude oil is mostly composed of chains of hydrocarbons of different lengths which serve a plethora of uses. They are separated through fractional distillation in oil refineries into different batches of hydrocarbons with similar properties. Separated, they are much more useful as they can be processed in to products in demand and are therefore of a much higher economic value than the crude oil mixture.
Crude oil can be refined into:
- Light Distillates
- LPG (Light Petroleum Gas)
- Middle Distillates
- Heavy Distillates
- Heavy fuel oil
- Lubricating oils
How is Crude Oil Classified?
Crude oil is classified by geographical location, in other words, the location from which it was extracted. It is then further classified by the density and its non-hydrocarbon components, particularly sulphur.
- Sweet or sour crude oil – a lower sulphur content makes the crude oil sweet, making it more valuable but a higher sulphur content is sour, a characteristic considered undesirable
- Light or heavy crude oil – refers to the relative density, based on the American Petroleum Institute Gravity (API), compared to water. Lighter is easier and less expensive to produce while heavy crude requires alternative methods to produce, transport and refine it. It also produces a greater share of lower valued products making lighter crude oil more desirable.
How is Crude Oil Traded?
Typically, traders in the physical oil market specialise in key markets which they are responsible for buying from and selling one or more derivatives of crude oil, generally from the same distillates group. There are also traders who are specialists in crude oil trading.
The price of crude oil is governed by supply and demand, global output and worldwide economic prosperity. Low economic growth and domestic production reduces the demand for imports meaning oil companies are forced to compete in new markets by discounting prices.
Countries with the largest proven oil reserves include Venezuela, Canada, Saudi Arabia, Iran, Iraq, Russia, Kuwait and the United Arab Emirates while the top producers of oil are Russia, Saudi Arabia, the United States, Iraq, China and Iran. The physical markets are mainly dominated by Saudi Arabia and Russia who both accounts for roughly 13% of the global production. Crude oil is transported via pipelines and shipping but it depends on the company, logistics, economics and location.
Similarly to other oil products, crude oil trading can be executed on the financial markets. Crude oil producers and consumers can manage price risk by purchasing futures contracts. Speculators also invest in oil futures contracts when they believe the price of crude oil will go up but will sell if they think the crude oil prices will fall. Options contracts, where the futures contract is typically the asset being traded, and OTC (over the counter) products are also available to be traded in the derivatives market.
Who are the Customers?
- Petrochemical producers
- Oil Refineries
- Trading Houses