Coastal Petro LLC - Trading or ReSeller - Description

Trading means doing business. The term petroleum trading descrbies the financial operations associated with commerce in hydrocarbon cargoes. The organisation of this business is complex.
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: destined initially for the United States, it is purchased during transport by a refiner in Rotterdam in the Netherlands.


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, organised 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, our 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.