Monday, August 23, 2010

Commodities Oil - 101

I thought over the next few entries I would try and pass on some information to bring some reality into the Energy based commodities industry …..lets assume we are dealing with Russian refinery.

POSITION OF SELLER COMPANY : the Seller is refiner or an Authorized, Mandated. Exclusive-Rights-Holder legally empowered to coordinate, conclude, manage, negotiate, organize and sell the commodity for and on behalf of the Producer/Supplier from Russia. The Producer/Supplier has blocked and stored an agreed volume of its petroleum products produced, specifically and in particular the said commodity, for the Seller to conduct and conclude the sales - and as such the Seller is currently the Lawful Owner of the commodity stored at the storage facility in Russia for instance, which is available and ready to be sold and shipped out at the request of any potential and capable buyer and/or purchaser.

NOTICE: For example… The Seller has 30 Million Bbl*12 months Government Quota for JP54 and 3 Million
MT*12 months for D2. They are the Exclusive Seller Company of this Quota. First month Immediate Delivery to be loaded (at least a large part of first month’s delivery.) No/little product “in tank”, product is in pipeline now. It is not “SPOT” a deal - Spot can be only in tank - an annual contract cannot normally be considered as Spot, unless it is effectively a contract, in other words a recurring SPOT…

There are lots of issues to talk about… they in main come down to this… the first step is always due diligence.. never assume anything… first never assume that the person you are talking to has done any due diligence… many take an email from their inbox and send it out without doing any due diligence… for this act for some reason, if a deal closes they expect an equal share …  I have unfortunately been in the place where I have made that assumption years ago to my detriment.. never assume that the information you are receiving is real or that the buyer / seller is RWA to proceed. That is unless you are next to a mandate… who has closed… ask the question … they may tell the truth.. real ones do … once you have been doing this a while you will soon know from the procedures and the answers to the questions if they are or not.  If you are at all unsure if your contact is a buyer or seller mandate… ask for his / her authority documents…another thing… if someone says they are a the buyer rep for a major, it is law as they are listed companies that an agent for a listed company you have to have authority documents from the major… if they spin, or stall..they are not direct and are not the majors official representative.

Long chains almost never close!

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