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In oil trading, the money is not only in the barrel. It is also in information, trust, financing, timing and the ability to bring the right people to the same table. The real question is how fairly that value is shared.
My relationship with oil began in China in 1990. Since then, I have seen the industry from several sides: as a diplomat; at the International Energy Agency; inside a major international energy company, British Gas; later around Genel Energy and BGN; as an investor through Global Resources Partners; and today through the London Energy Club, where producers, traders, refiners, bankers, investors and policymakers regularly cross paths.
More than three decades in this world have taught me two things. The first is that oil trading is far more complicated than it appears from the outside. The second is more important: one of the most valuable commodities in this business is not oil at all. It is a reliable human being.
Oil trading is not simply a matter of buying cheaply and selling dearly. From the moment a million-barrel cargo leaves the producer until it reaches a refinery, many actors take different risks, solve different problems and expect a share of the value created.
Quite often, the biggest arguments are not about the oil price itself, but about who deserves what share of the economics.
When an oil deal comes across my desk, the first thing I ask is not the price.
Does the oil actually exist? Who owns it? Who is authorised to sell it? From which terminal can it load? When is it available? What is the quality? Is the seller a producer, an authorised trader or the fifth person in a chain of self-described mandates? Is the buyer really a refinery or established trader, or simply another intermediary looking for a buyer behind him? Is financing available? Will a bank touch the transaction?
If those questions cannot be answered clearly, claims of "Brent minus $10" or "Brent minus $15" are largely meaningless.
One of the most common mistakes I have seen is people calculating the potential profit before establishing whether the deal itself is real.
Professional markets work the other way round.
First reality, then profitability.
That principle is useful well beyond oil.
At the beginning of the chain is the producer.
Production costs, crude quality, taxation and the government's take vary greatly between Saudi Arabia, Iraq, the UAE, Libya, the United States and other producing countries. But the producer's basic objective is the same: to maximise the net value received for each barrel.
The headline oil price is only part of the calculation. Freight, terminal costs, quality differentials and the destination market all affect the final netback.
The same crude can therefore have a different economic value in Europe, Asia or the Mediterranean.
Owning the resource is a major advantage, but it does not mean capturing all the value generated after the oil leaves the ground.
This distinction is important.
A genuine trader is not the same thing as a broker.
A trader may buy the cargo, take title, arrange $70 million to $100 million in financing, charter the vessel, hedge the price exposure and assume responsibility for getting the crude to the right destination at the right time.
Suppose a trader buys one million barrels at Brent minus $1.50 and sells them at Brent minus 70 cents.
On paper, the gross spread is 80 cents a barrel, or $800,000.
But that is not profit.
Financing costs, freight, insurance, inspection, port charges, hedging expenses, legal costs, operations and possible delays all have to be deducted before the true margin emerges.
A good trader is paid because he commits capital and manages risk.
More fundamentally, he solves mismatches between time, geography, quality, financing and market access.
If he is not solving a problem, his margin will not survive for long.
A million barrels of crude may be worth $80 million or more.
Someone has to finance that exposure.
Banks provide credit lines, letters of credit, payment guarantees and trade finance, earning fees and interest in return.
This makes them some of the most important, if least visible, actors in physical oil trading.
A bank does not begin by asking whether the crude is cheap.
It asks whether its money will come back.
Who are the counterparties? What is the origin of the cargo? Are the documents credible? Are there sanctions concerns? Can title be established? Is the transaction compliant and financeable?
A deal may look commercially attractive and still be unbankable.
That is a lesson many businesses learn too late.
The shipowner earns freight.
The insurer earns a premium.
The terminal charges for loading and discharge.
The independent inspector is paid to verify quantity and quality.
Storage companies charge tank rental.
Lawyers structure contracts and reduce legal risk.
Financial institutions earn spreads and fees from hedging and financing.
The refinery then converts the crude into petrol, diesel, jet fuel, naphtha and petrochemical feedstocks, creating another layer of value.
A million-barrel tanker therefore carries more than oil.
It carries a small moving economy.
This is another area where outsiders often misunderstand the business.
A refinery does not necessarily want the cheapest barrel.
It wants the right barrel.
A crude that costs more may generate a higher yield of diesel, jet fuel or other valuable products in a particular refinery configuration and therefore be more profitable overall.
The refinery's economics depend on the spread between crude input costs and the value of the products it can produce.
So the lowest purchase price is not always the best purchase.
The wider business lesson is obvious: the cheapest supplier is not necessarily the most valuable one.
This is where the debate becomes more sensitive.
A genuine broker can create significant economic value.
If someone has direct access to a producer's cargo and can introduce it to a creditworthy refinery or established trader, that connection is worth something.
Likewise, if a serious buyer would otherwise have no access to a reliable seller and someone opens that door, real value has been created.
The broker does not usually own the oil, finance the cargo or carry price risk.
His capital is different.
It is his network.
His reputation.
His information.
His access.
And, most importantly, whether the person at the other end actually takes his call.
That kind of access may have taken decades to build and should not be dismissed.
The problem begins when one broker becomes five.
The pattern is familiar.
One person knows the seller.
A second knows the first.
A third calls himself the "seller mandate".
A fourth claims to be close to the buyer.
A fifth eventually produces the actual refinery.
Then the central question becomes:
"What is my commission?"
One intermediary wants 50 cents a barrel, another 30 cents, another a dollar.
On a million barrels, 50 cents is $500,000.
At some point, the economics of the cargo begin to buckle under the expectations of people who may have taken no capital risk and contributed very little to execution.
The oil trade turns into commission trading.
The tragedy is that while everyone tries to protect his slice, the real buyer and real seller may never be allowed to speak properly to one another, and a perfectly viable deal dies.
This is not unique to oil.
Across business, too many people focus on securing a share of value before establishing whether they have actually created any.
Suppose there is a $500,000 commission pool for introducers and brokers.
If five people are involved, dividing it into five equal shares may look fair.
It may not be.
One person may have spent years building a relationship with the producer and brought the real cargo.
Another may have secured access to the actual buyer.
A third may have carried negotiations for six months, solved banking problems and pushed the deal to closing.
A fourth may simply have forwarded an email.
Their contributions are not equivalent.
My rule is straightforward:
Reward contribution, not presence.
Who brought the seller?
Who brought the buyer?
Who solved the financing?
Who carried the negotiation?
Who removed a legal, political or commercial obstacle?
Who actually helped close the deal?
Those roles should be discussed early and, wherever possible, documented.
The worst commission disputes usually occur when everyone waits until the buyer and seller are already at the table.
Poorly structured deals quickly become defensive.
The seller's identity is hidden.
The buyer is hidden.
Phone numbers are withheld.
"You cannot speak directly without me."
"Sign the confidentiality agreement first."
"Do not bypass me."
The fear is understandable. People do get cut out of transactions.
But permanently hiding counterparties is not a sustainable solution.
The better approach is to define and protect each person's legitimate role and economic entitlement from the outset.
A professional broker should not be frightened when buyer and seller begin speaking directly.
That conversation is often precisely what he is being paid to make possible.
The need for short, transparent chains is even greater in transactions involving Russia, Libya or other jurisdictions where sanctions, political risk or institutional uncertainty are material.
Grand titles should not impress you too much:
"Mandate of the mandate."
"Allocation holder."
"Exclusive representative."
"Special facilitator."
My question remains much simpler:
How many calls are you away from the actual owner of the oil?
The longer the chain, the greater the risk of misinformation, false authority, sanctions problems, document fraud and commission disputes.
Sometimes the best network is not the largest one.
It is the shortest reliable one.
When I became involved in my first oil-trading contacts with China in the early 1990s, China was not yet the enormous importer it is today.
But even then, it was possible to see that oil was more than an energy commodity. It was strategic power.
The IEA later taught me how producer-consumer relationships shape global energy security. British Gas showed me the discipline of a large international company. Genel Energy and BGN exposed me to the realities of production and trading. Global Resources Partners offered the investor's perspective. The London Energy Club continues to remind me how differently governments, traders, financiers and producers can view the very same barrel.
After all those experiences, my summary of the business remains three words:
Information, trust and performance.
Without information, you do not see the opportunity.
Without trust, nobody gives you an $80 million cargo.
Without performance, there is no second transaction.
Making money is not shameful.
Neither is brokering.
Nor is using a network.
Opening a door, bringing two credible parties together and mobilising relationships built over decades can have substantial economic value.
But the legitimacy of profit comes from the value created.
Forwarding an email and expecting a seven-figure fee is not the same thing as making a transaction possible that otherwise would never have happened.
At the same time, producers should not assume all value belongs to them simply because they own the resource. Traders cannot assume the entire margin belongs to them because they structure the deal.
Healthy commerce works when each participant earns in proportion to the problem solved and the risk carried.
And the real test of a partnership is rarely the first deal.
It is the second.
The third.
The tenth.
The most successful oil people I have met over more than three decades were rarely those with the thickest stack of business cards or the loudest claim to being "the mandate".
They were the people whose calls were returned.
Who stood behind their word.
Who did not disappear when something went wrong.
And who, rather than extracting the last possible dollar from the first cargo, understood the value of doing the next ten together.
One million barrels can make you money once.
A reputation for being a reliable partner can make you money for decades.
Oil itself takes millions of years to form.
A commercial reputation may take thirty years.
It can disappear in minutes.
So when a million barrels leave Basra, Ceyhan, Libya or the Gulf and sail towards a refinery on another continent, the visible commodity on board may be crude oil.
But the invisible commodity moving the entire transaction is still the same:
Trust.
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