Crude Oil Matters

It takes at the very least, 20-40 days to eventuate spot delivery crude oil from lets say the Kingdom of Saudi Arabia, for KSA Light at 34 API grade using the “ Day on , day before, day after” loading world price index average, as taken from the 8th of January 2008 for delivery at F.O.B.- If the goods are on board or ocean going then you have no spot deal but a future deal in where an intermediary will need at least 90 days to close a such adeal- The "Average day before , on, after" pricing application cannot be used no matter what deliver mode is applied- Not by an intermediary Buyer/Seller.(YOU)

In this example I have taken actual real time prices to apply as applicable at the time of writing this article. The End Buyer would have had to issue a financial instrument imply a value of (approx) USD$88.52 per Bbl FOB but the on board price taken to define an average price, means that the 40 plus days it takes to physically deliver the crude could apply that by the time the crude is off loaded world prices could indeed have either gone up or down- Don't forget the end buyer is alos "Playing the market"

In our example lets assume that the price has gone up- which it did hovering around USD$100.00 FOB and USD$104.00 at CIF per bbl by the time the goods were offloaded at destination port- The buyer now processes the fuel to produce Naphtha, Diesel, Gasoline and other “Crack Spreads”(Raw product broken down to producer other much needed “added value” goods)

Buy the time the producer starts selling such goods at wholesale by April of the same year, the world price of crude at that time was around USD$113.00 dollars per bbl FOB and around USD$117.00 per bbl plus at CIF. Do the sums- USD$88.52 purchase price at FOB. Final World crude prices average at Wholesale time USD$113.00 plus FOB. We are looking at Gross margin on Crude oil alone of USD$25.00 plus per bbl- and it is a gross profit margin indeed, the buyer could have purchased the goods at CIF USD$92.42 per bbl, Have the goods delivered at destination port at DES (ex ship) and sold for US$96.00 per bbl still giving his buyer a USD$4.00 per bbl as a discount on world price averages and walk away with USD$4 million dollars in gains on a 1 million bbl shipment.

SO YES..IT VERY TRUE- THE BIG PLAYERS ARE MAKING MONEY OF CRUDE OIL SALES IN THE MANNER DISCLOSED, THUS INTERMEDIARIES CAN ALSO! THERE IS NO MYTH THAT SUCH DEALS ARE HAPPENING. THE MYTH APPLIES IN THAT THERE ARE ALL THESE SELLERS OUT THERE IN CYBER SPACE OFFERING SUCH PRODUCTS, WHEN IN FACT MOST OF SUCH OFFERING ARE NONSENSE AND FAKES-

In our example, the End buyer gained USD$4 dollars per bbl on world prices at the time of taking delivery in an environment where by the time the end buyer refined such goods, the price of crude would did reach USD$125.00 per bbl plus- this allow the end buyer come refiner to arrive at a price for such refined goods by simply spreading the overall expense of refining such goods, to the actual goods themselves- Thus in winter “heating oil” is going to absorb the price due to higher volume sales, of having to keep on storage lower volume sales of gasoline- in summer the opposite will prevail-

The intermediary really needs to remained focused on price movements if they are going to attempt to become a seller/buyer of crude oil. There is money in the “margins”, but the intermediary has to identify such margins and manipulate his own guided price applications accordingly in an supported regiments environment. The supported regimented environment of “Bench marks” implies a sort of guiding “Mechanism”- something the intermediary can depend on, and lean upon as a solid platform to formulate his own “Plan of attack” TO BIGIN WITH THE INTERMEDIARY CANNOT DELIVER GOODS AT LESS THAN 90 DAYS FOR DATE OF OFFER IS ACCEPTED.

THIS MEANS FORGET ABOUT “SPOT” DEALS. THE INTERMEDIARY IS DEALING IN A “FUTURE” DELIVERY DATE- The intermediary wanting to really deal in crude oil and fuels needs to studying, track and used indices pricing such as Brent's, DME, Nymex and others- These are the main bench marks that the intermediary can lean upon to devise their own “Plan of attack” in creating offers to sell crude oil or fuels, but only if the intermediary can get supply and only after the intermediary understands the mechanism as it pertains to world prices, end product “spreads’ and the mechanism as it pertains to actual trading procedures.

Many silly offers seen on the net carry for instances " Med Platt "  less 15 dollars per BBL- Find the Mediterranean platt internet page  that allow an intermediary to track and formulate such prices..? Many bench mark sites offer some kind of advice , but at the end of the day such sites   often  want 1000's of dollars for the trader to sign up and  obtain full access to such price boards-  In a one day experiemt FTN signed up to 5 different sites offering prices and the likes to a variety of products at the end of the day, the  information given was por or information sought was not available unless i became a member- that one single sign up would have cost me over 12,000 dollars- For what ? To trade on deals which for 99.9% of the time are fakes- Don't pay for such membership until you close you first deal is my advice - You"ll be wasting your money. Find good  FREE alternative sites to work with- they are there, but may take time to find.

Back to the deal-

(A) FTN EXPORTING USES FREE BRENTS, BUNKERWORLD OR NYMEX BENCHMARK  ACCESS FOR BUYING AND SELLING. YOU CAN DO THE SAME. YOU GO TO THE NYMEX.COM SITE WHICH WILL DISPLAY THE DAILY WTI PRICE OF CRUDE AT 34 API. SO THE INTERMEDIARY HAS A RELIABLE RESPECTED DAILY PRICE INDICE TO WORK WITH. (B) THE INTERMEDIARY KNOWS THAT ‘DELIVERY” AS PER INCOTERMS FOB MEANS “ DELIVERY“ OF DOCUMENT AND NOT PHYSICAL GOODS- THUS “90 DAYS DELIVERY” MEANS JUST THAT- LONGER THE BETTER . SHORTER THE RISKIER. (C) MAYBE THE SUPPLIER OR END BUYER IS ASKING FOR A DIFFERING BENCHMARK TO BE USED. SO LONG AS IT CAN BE SEEN VIA THE INTERNET THEN THE INTERMEDIARY CAN APPLY AS SUCH INSTEAD OF NYMEX. (D) REMEMBER? TO YOUR END BUYER, YOUR TERMS AND CONDITIONS APPLY. TO THE SUPPLIER THEIR TERMS AND CONDITIONS APPLY TO YOU. SUCH A PREMISE IS NOT IMPORTANT . IF YOU USE NYMEX AS YOUR BENCHMARK WITH YOUR END BUYER AND THE SUPPLIER USES “BRENTS” THEN SO LONG AS YOUR PRICING FORMULATION WORKS TO FAVOUR YOU, THEN ALL IS FINE. SO? YOU GET A REAL OFFER FROM A SUPPLIER , YOU NOW CAN MAKE A RESELLING OFFER TO YOUR END BUYER USING LETS SAY “NYMEX” OR “WWW.WTRG.COM” AS YOUR CHOSEN BASE PRICE APPLICATION. FOR FUELS FTN EXPORTING USES http://www.bunkerworld.com/markets/prices/tr/ist/

YOU NOW HAVE BENCHMARKS TO FOLLOW AND USED EASILY ASSESSABLE FROM THE NET.Y OU HAVE A GOOD STARTING POINT .YOU ARE INFORMED AND YOUR ARE READY TO MAKE YOUR OFFER TO YOUR END BUYER AS  THE PRINCIPAL INTERMEDIARY AND " SELLER"

A genuine scenario is given above of how gains can be made without even considering that a supplier may at times also offer a few dollars in discounts as well ( albeit not as often as some may think- its the seller who creatse the discount most of the time.) Such a scenario can be used by intermediaries as used by end buyer and producers, but we need to apply a different “mechanism” as it pertains to “Payments and Price” and In where spot deals are not ALLOWED .