Trading and Wholesale

It is often assumed that the purchase of commercial quantities of crude oil or refined products can be arranged on a business-to-business basis, as most wholesale dealings are finalized. However, in this industry virtually all revenue is earned via commodities exchanges, with the only exceptions being over-the-counter deals between entities with long-standing and established relationships. For example, this may occur among two international trading companies, or from a refiner direct to an airport or marine port, but in modern times these contracts are increasingly rare. In fact, these types of settlements are so uncommon that Rusneftegaz does not conduct any transactions in this manner, finalizing all our oil sales through exchanges. This is primarily due to the guarantees and legal protections offered by these organizations, with the body acting as a central counterparty to both the buyer and seller. In context, this means that the exchange will accept payment for the product from the customer, and withhold this from the retailer until the commodity has been transferred into the custody of the bourse. At which time, the funds will then be simultaneously released to one party, and the goods purchased to the other. Such an arrangement mitigates the opportunities for fraud and abuse on both sides; remittance of cash cannot be fraudulently evaded, nor can the quality or quantity of the supplied merchandise be compromised. In recent years, one of the most common scams perpetuated by criminals operating in the hydrocarbon sector is to make exceedingly large orders in return for a falsified financial instrument, such as a letter of credit. Thus, by exclusively utilizing such services to facilitate commerce, these poor attempts at deception are conveniently avoided.

At present, the most significant commodity markets in the world are the Chicago Mercantile Exchange, abbreviated to CME, and the Intercontinental Exchange, shortened to ICE. Despite the formers' misnomer, these bodies service the entire planet, with trading based around hubs. Such locations act as a place where contracts are settled, but also act more broadly as key sites for the refining, storage and wider distribution of these goods. The largest of these centers is Cushing, an American city in Oklahoma, where the price of the West Texas Intermediate oil blend is determined. Owing to the size of their market, the United States also conducts substantial amounts of business in the ports of New Orleans and New York, where large volumes of petroleum are both imported and exported accordingly. Internationally, there are major hubs located in Fujairah, a city in the United Arab Emirates, and the city-state of Singapore. But the most relevant location to Rusneftegaz is the ARA region, an abridgment of the Amsterdam-Rotterdam-Antwerp area. This expanse serves as the focal point of the European oil trade, at the juncture between the North Sea and the Rhine, and is therefore easily accessible to most countries in the northwest of the continent. However, although both these multinational exchanges utilize multiple delivery points spanning the globe, the remit of a commodities bourse extends only beyond a designated regional or national geographical area. In this regard, the foremost organization for this in Russia, the Saint Petersburg International Mercantile Exchange, otherwise known as SPIMEX, is no exception, and is the primary conduit for all our hydrocarbon revenues.

This particular body acts as the largest source of petroleum of Russian origin, such as Urals-blend crude and refined products, specifically gasoline, fuel oil, jet fuel and diesel, through both the railways and the pipeline system operated by Transneft. Such networks are then able to transfer the acquired goods to all major international ports throughout the country, including Primorsk, Ust-Luga and Vladivostok, for export. In some instances, the hydrocarbons can also be transported to terminals in neighboring nations, namely Ventspils in Latvia, and Klaipėda in Lithuania, where it can then be loaded onto vessels or cargo trains. The contracts listed by commodity exchanges are divided into two types, spots and futures. The former entails the immediate availability of the product for the buyer, or in the days after the deal is agreed, whilst the latter involves the shipment of the purchased goods during a specified month thereafter. The variation in delivery dates ultimately leads to price differentials between the trading arrangements, with the value of the spot rate usually exceeding that of contracts finalized in the months ahead, known as contango. Nevertheless, to access these commodities, it is fundamentally necessary to employ the services of a recognized and regulated broker in order to commence dealings on the oil market. These entities serve as clearing members of an exchange, approving transactions and bearing full responsibility for the conduct of the companies who operate within its rules and regulations. Such businesses typically include large multinational investment banks, in addition to dedicated derivative brokers.

In general, there is a greater quantity of American and European firms acting in this capacity than Russian and Asian enterprises, principally for historical reasons, but also due to the fact that until recently the former maintained far higher standards of service for their clients. Likewise, potential buyers also have the option of employing the assistance of market makers to fulfill their requirements. These corporations are connected to the bourse via their own agreements with brokers, which allow them to trade on behalf of others. In this case, the intermediary will quote prices to their customers at a nominal premium above the going rate, chiefly to guarantee a slender profit for themselves from each transaction. However, it must be noted that not all these organizations are capable of providing contracts for the physical delivery of the desired goods. Instead, some only have the capability to provide financial settlement, which is designed for speculative purposes only, such as through the use of options. All such arrangements will then be finalized in cash, with the yield being the difference between the strike price and the value of the commodity on the day the contract ends. Most importantly, any prospective commodities purchaser should refrain from using the internet to find sellers of crude and refined products, especially anyone claiming to act as an agent or mandate for an oil company or a refinery. These offers regularly appear on business-to-business websites and social media platforms, but are always fraudulent. Such proposals routinely facilitate advanced-fee frauds against their victims, and are frequently perpetuated by scammers located in countries across the globe.