Crude Oil is one of the most frequently traded commodities both on commodity exchanges and in merchant trading scenario. The production of crude oil is restricted only to a few countries, whereas its demand is present in every nook and corner of the world. Demand for crude can be classified mainly as for automobile fuel and industrial raw material. World over automobiles are run using fuels obtained after refining of crude. And many industries demand upon this commodity as its prime supply of raw material. Due to this importance there are many businessmen who like to get associated with trading of crude but often find it hard to be successful in this business. Let us discuss further what it takes to be successful in this business.
Merchant trading in crude oil is not everyone’s cup of tea. Though it is one of the most lucrative businesses but still it is high risk and has high entry barriers. I have listed below few resources which are absolutely essential if you would want to be successfully associated with doing this business.
Finances: You must be able to arrange huge finances before even making a start in this business. There are very few people who would be able to arrange the required finances to fund even the minimum parcel of crude oil. You finance requirement would at least be in hundred million dollars in order to do this business. Having your finances in place is the first step as the sellers would ask you for BCL (Bank Comfort Letter) or PoF (Proof of Funds) before negotiating with you.
Suppliers: As there are only few refineries around the world you would require being in very good terms with them in order to get allocation of crude. There is a good possibility that even after raised the required finances you will not be able to get the allocation of the product. It can be an egg or hen story for the beginners who would not know how to get their job done at the highest level.
Buyers: Once you have the product in your kitty getting buyer should not be a difficult part but dealing with any new buyer you have to be absolutely sure at every stage of the transaction. Your business skills will play an important role to get you though this stage.
Facilitators of trade: Your relationship and ability to handle facilitators of trade (such as Banks and Logistics) is very crucial and important for a successful business deal. Even a slightest failure of co-operation on part of these agencies can put you in a mess. So give due importance to them and be careful in handling your relationship with these agencies.