Crude oil is one of the most traded commodities in the world. Although the majority of the supply is produced by a relatively small number of businesses and often in remote areas that are far away from the point of consumption, crude oil trading remains robust as the products continue to be shipped all over the world.
If you’re wondering what goes into crude oil trading in Singapore, continue reading to find out.
Trade Agreement: The trader agrees to buy oil from an oil major loading and to sell the oil cargo to a refinery. The process takes place in 41-45 days and 101-105 days, respectively.
Price Agreement: The trading is funded through agreements with each party’s bank. The Oil major issues an invoice to the trader and indicates when the trader must lift the oil. For most transactions, a Letter of Credit (LC) is issued by the applicant’s bank.
Loading: The commodity being financed by the LC is labelled as security and the LC gives credit to the trader. Hence, the creditworthiness of the buyer is backed by that of the Bank and the oil cargo itself will serve as the collateral.
During this stage, the following will also take place:
• The trader nominates a tanker who will lift the stem in the loading sequence.
• The seller draws down the LC, which is then converted into a secured loan from the bank that issued the LC.
Transportation: The loan is marked to market on a weekly basis until it reaches maturity. This is to make sure that the amount being financed corresponds to the value of the commodity.
Delivery: Finally, the trader issues invoice to the refinery, which is then securitised.
Ocean Energy is an oil trading company in Singapore that offers crude oil, petroleum products, and petrochemicals among others.
Visit their website to learn more.
