The Hard Facts About Being an Oil Broker

1. THE UGLY FACTS OF LIFE ABOUT BEING A PETROLEUM TRADER
Anyone who's got involved in the inevitable daisy chains that are part of the
online international commodity "trading" business has learned a new meaning of
the term "dead end."
The fact is (and this is learned from real oil traders who know from experience)
that most of these "deals" are just fake, plain and simple.
Thanks to the Internet, these days some phony-baloney oil brokers even have
their own websites and call themselves petroleum suppliers or petroleum
companies even though they may not have completed a single real oil trade
transaction in their lives. I often ask myself “Why do they keep doing it?”
The answer is, I honestly don't know and the sad thing is these traders'
persistence could be put
to good use if they ever
took the time to actually
learn about the business.
And for one moment,
don't think it's only the
unschooled that fall victim
to these daisy chains.
Many sophisticated and
intellectual people such as
attorneys, experienced
business professionals,
both men and women
who should know better
are frequently drawn into the black hole created by these “Joker-Brokers”.
When real petroleum companies such as Shell, Chevron, BP, AGIP deal with real
refiners in foreign countries, the standard procedure is that the seller makes a
firm offer to the buyer - subject to whatever he needs done - and the buyer then
takes a look at the offer and says either we've got a deal or we don't.
Simple! It's just like any other trade transaction in that regard. Too many
buzzwords and too many qualifiers usually mean you should stay clear. And
contacts who are actively seeking banking information before any discussion of
product are usually non-players. This also allies to so called “Sellers” who ask for
Proof of Funds prior to issuing any form of Proof of Product………
What about discounts? Real traders know there's no discount on orders whether
it's a big deal or a small deal but the "play traders" believe that if the deal is

2. bigger, there should be a bigger discount. This is another example of not
knowing the industry.
Instead of looking for suppliers of huge amounts of oil in its various forms, the real
buyers know that no single supplier can come up with one million barrels a
month (an amount frequently tossed around) because the refining capability
just isn't there.
What about someone fronting for a rich Saudi Sheik? Fat chance! Say the real
traders. In the case of Saudi Arabia, there are only two legitimate organizations
that sell oil on behalf of the country or an oil consortium. Someone who says he's
selling on behalf of a Saudi sheik is just, well, full of sheik!
And if they start talking about millions of barrels per month it's almost certainly
not real unless they're
talking about crude oil.
Remember, a broker's
entire job is to help a
petroleum company's
trading department find or
sell oil and related
products so that he will
receive a commission
when the deal comes
together. Will you get
paid? That's always an
issue for export
intermediaries but it can
be especially tricky in the oil business.
The fact is that most oil companies -- and especially the big ones -- have traders
in their marketing departments who operate honestly and fulfill obligations to
brokers. But there are some independent and smaller companies who treat
brokers shabbily and their reputations are widely known - another reason to get
smart on the oil business before you dive in.
Surprisingly, you will probably find that many of the bigger oil trading companies
will not only accept your services but may also provide advice and assistance.
So what's the bottom line?
Like I said before, being a Petroleum Trader isn’t easy, and you've got to know
what you're doing. The fact is, petroleum marketing is a dog-eat-dog business

3. and if you're a broker, you'd better have the resilience and perseverance to
work through the baloney and outright deceit which seems to attach itself to
petroleum trading.
Frankly, unless you have contacts in or familiarity with the petroleum industry, I
recommend you stay with small- and mid-sized product manufacturers who are
not exporting their products. It may not be as exotic as trading in petroleum, but
it works - and you can make some real money. If you insist on trading in the
volatile petroleum industry, try to find someone who will mentor you on the ins
and outs. This is probably the best way to make sure you don't get "burned" by
oil.
OIL BROKER
One who acts as a go-between in the
domestic or international crude oil market.
A broker will find a market for a quantity of
crude or product not committed by long-
term contract. Just as readily, he will come
up with oil for someone who wishes to buy.
Brokers perform a useful function in the oil
business by being knowledgeable about the
industry's supply and demand situation He
is the unobtrusive link between buyer and
seller, independent producer and small
refiner. For his services, the broker receives
either a flat fee or a percentage of the deal
he helps consummate.
This brings us to DUE DILIGENCE and COMMISSIONS and I shall refer to them
separately.
DUE DILIGENCE a phrase rarely spoken of or used by a broker, maybe that’s
because they don’t want to find out that the so called “Seller” has nothing to
offer or perhaps they think that ignorance of the understanding of the phrase
will protect them in a court of law.
So to clarify things let me define what Due Diligence is.
DUE DILIGENCE is the process of evaluating a prospective business decision by
getting information about the financial, legal and other material (important)
information and or state of the other party.
In simple lay terms it means finding out about the company that is selling the
product, for example where is the company registered? Are they the actual title
holder of the product? Is the product free of all encumbrances and liens? What
port is the product at? What is liftable? Does it come with a current SGS or

4. Saybolt inspection of quality? Is it being sold CIF or FOB? Basic questions, seldom
asked.
The problem is that a Broker passing on information from a “Reliable Source”
without doing any Due Diligence could find themselves embroiled in a law suit
should the facts that they presented to the Buyer not be as stated and be
changed with “Fraudulent Misrepresentation”
Fraudulent misrepresentation is a situation in which an individual or entity has taken deliberate steps to intentionally
deceive one or more other parties. The deception may involve issuing statements that are known to be untrue, or to
deliberately omit relevant facts or information that ultimately lead to some type of loss. In many jurisdictions, this type of
negligent misrepresentation is punishable by fines, prison, or a combination of the two. Often, the party found guilty of the
misrepresentation is ordered to make some type of recompense to the injured party.
Misrepresentation is a type of tort that a defendant can be charged with in a civil action. It typically occurs when a
person makes a false statement of material fact for the purpose
of persuading another person to enter into a contract or other
arrangement.
Negligent misrepresentation is a concept which arises in contract
law. In general, misrepresentation refers to a situation in which
someone makes a false statement for the purpose of making a
deal, resulting in the person who relies on the statement
experiencing harm. In the case of negligent misrepresentation,
someone makes a statement without any grounds for knowing
whether it is true or not.
So for those brokers that do not perform
Due Diligence you have been warned
ignorance of the law is no excuse.
This brings us to commissions
COMMISSION-FEES
A fee charged by a broker or agent for his/her service in facilitating a
transaction, such as the buying or selling of securities or real estate.
In the case of securities trading, brokers can be split into two broad categories depending on the commissions they charge.
Discount brokers charge relatively low commissions, but provide no services beyond executing trades. Full service brokers
charge higher commissions, but provide research and investment advisory services.
Over the past few years I have seen the fees charged to a possible transaction
spiral upward in some cases reaching the astronomic heights of $30 USD per
metric ton to be divided 50 – 50 between the buy side and the sell side. For God
Sake! Get a life! Or at least do the mathematics, on a simple 100,000 metric ton

5. transaction using the figures I have quoted that’s $30,000,000 please explain
how we as the buyers are supposed to justify that amount of money to the bank
at which we have our lines of credit, and perhaps if I have a reader at this point
they can explain what the broker did to earn this amazing sum of money and
also answer me the question that comes up each time this situation occurs, Why
are we paying the commission for the sell side of the transaction, isn’t that the
responsibility of the Seller?
I have no idea where the idea that fees of this magnitude are paid to brokers in
an oil transaction, or for that matter who in the transaction is going to pay them,
certainly not me as the buyer! I have heard brokers state that all fees in this
industry are set by the International Chamber of Commerce (ICC) WRONG! The
ICC has nothing to do with this business, we are not members, therefore are not
governed by ICC rules.
The standard fee for a transaction is $1.00 to the buy side brokers divided how
they wish and certainly no fees are paid by the buyer to the sell side, that’s the
responsibility of the seller. Bear in mind, none of the majors pay brokers fees, so
be happy with what you are given.
Having been in the oil business since 1976 many years prior to the birth of the
internet and Skype I feel that have the practical experience and the hands on
management knowledge and skills required to try and set some of the
misunderstandings right, if you disagree, that’s your prerogative, but as I tell the
people that work for us, “THINK THE DEAL THROUGH” if you as a fresh faced
young broker or a grizzled seasoned veteran take the time to think about the
process, I am sure that you will realize that this industry requires a lot of hard work
and effort, so rather than just pass the deal from your friend Joe along to the
next broker friend, Do some dam work and find out if the deals real or not and
try to earn your commissions
Robert McAngus Managing Partner for the Robert McAngus Group
www.mcangus-group.com
ORIGINALLY ARTICLE WRITTEN AND ISSUED IN 2004 - © RMG