Anyone who's gotten involved in the inevitable daisy chains that are part of the online international commodity "trading" business has learned a new meaning of the term "dead end."
The fact is (and this is learned from real oil traders who know from experience) that most of these "deals" are just fake, plain and simple.
Thanks to the Internet, these days some phony-baloney oil brokers even have their own websites and call themselves petroleum suppliers or petroleum companies even though they may not have completed a single real oil trade transaction in their lives. Why do they keep doing it?
I sincerely do not know. The sad thing is these merchants' persistence could be put to good use if they ever took the time to actually learn about the business. And do not think it's only the unschooled who fall victim to these daisy chains. Many lawyers, MBAs and educated men and women who should know better are frequently sucked in too.
When real petroleum companies deal with real refiners in foreign countries, the standard procedure is that the seller makes a firm offer to the buyer – subject to whatever he needs done – and the buyer then takes a look at the offer and says either we've Got a deal or we do not.
Simple. It's just like any other trade transaction in that regard. Too many buzzwords and too many qualifiers usually mean you should stay clear. And contacts who are actively seeking banking information before any discussion of product are usually non-players.
What about discounts? Real traders know there's no discount on orders whether it's a big deal or a small deal but the "play traders" believe that if the deal is bigger, there should be a bigger discount. This is another example of not knowing the industry.
Instead of looking for suppliers of huge amounts of oil in its various forms, the real buyers know that no single supplier can come up with one million barrels a month (an amount frequently tossed around) because the refining capacity just is not there.
What about someone fronting for a rich Saudi sheik?
Fat chance, say the real traders. In the case of Saudi Arabia, there are only two legitimate organizations that sell oil on behalf of the country or an oil consortium. Someone who says he's selling on behalf of a Saudi sheik is just, well, full of sheik!
And if they start talking about millions of barrels per month it's almost certainly not real unless they're talking about crude oil.
Remember, a broker's entire job is to help a petroleum company's trading department find or sell oil and related products so that he will receive a commission when the deal comes together. Will you get paid? That's always an issue for export intermediaries but it can be especially tricky in the oil business.
The fact is that most oil companies – and especially the big ones – have traders in their marketing departments who operate honestly and fulfill obligations to brokers. But there are some independent and smaller companies who treat brokers shabbily and their reputations are widely known – another reason to get smart on the oil business before you dive in.
Surprisingly, you will probably find that many of the larger oil trading companies will not only accept your services but may also provide advice and assistance.
So what's the bottom line?
Like I said before, it is not easy. And you've got to know what you're doing. The fact is, petroleum marketing is a dog-eat-dog business and if you're a broker, you'd better have the resilience and perseverance to work through the baloney and outright deceit which seems to attach itself to petroleum trading.
Frankly, unless you have contacts in or familiarity with the petroleum industry, I recommend you stay with small- and mid-sized product manufacturers who are not exporting their products. It may not be as exotic as trading in petroleum, but it works – and you can make some real money. If you insist on trading in the volatile petroleum industry, try to find someone who will mentor you on the ins and outs. This is probably the best way to make sure you do not get "burned" by oil.