Crude oil is the most traded commodity and one of the most valuable commodities in the world today.
The unrefined liquid, which was discovered in 1859, supplies over 40 percent of the world’s total energy needs even though there have been various efforts by several countries to cut their dependence on crude oil and move to other renewable sources of energy.
Since crude oil is a major commodity, it is then a very lucrative business venture for any entrepreneur or investor and also a major means of revenue for any country that posses the liquid in its soil. South Africa is one of those countries and the major exporter of oil crude in Africa.
South Africa’s daily oil production caps at about 2.16 million barrels according to its 2018 figures which make the country one of the best locations for those who wish to venture into the crude oil brokerage business.
Crude oil brokerage is a very lucrative business opportunity and it offers a fast and high earning income potential. It is one of the most profitable oil and gas sections that require little or no capital to start.
What is Crude Oil Brokerage?
Crude oil brokerage involves scouting for crude buyers on behalf of a crude oil seller for a commission when the deal is completed. The broker simply acts as a middle man and sells crude oil on behalf of one or more petroleum products marketers.
For example, if you are able to arrange a transaction between a crude oil buyer who needs 10,000 liters of AGO (Diesel) or PMS (Petrol) and a marketer who has agreed to pay you $0.1 (N36) per liter, you will earn a commission of $1000 (R$ 13,320) if the deal is executed. All you simply need to do is get a crude oil buyer for a marketer and you wouldn’t have to spend any more except your time in getting the buyers.
Note: You might actually receive a commission of $1 per barrel of crude oil.
While venturing into crude oil brokerage business is not capital intensive, you might, however, require some capital to set up before you can fully launch yourself as a crude oil broker.
How To Start Crude Oil Brokerage Business in South Africa: Step By Step Guide
Step 1: Learn the Basics
Before venturing into any business, you are required to research and learn the basics of that business. In crude oil brokerage business, there are some terminologies you must know to prepare you for the business
These terminologies describe the various forms of delivery arrangement between crude oil buyers and sellers. They are simply the basics as there are more terminologies you are required to understand while operating as a crude oil broker.
Here are a few ones.
- FOB (Free On Board): This sales term simply means the seller will load the petroleum product on the vessel and cover the cost of clearance while the buyer will cover the cost of transportation
- TTO (Tanker Take Over): This term means the buyer takes over the hiring of a tanker and the products within it
- TTT (Tanker to Tanker Transshipment): This means the buyer will hire their own vessel and cover the cost of shipment of the product from the seller
Step 2: Connect with Oil Marketers
Before connecting with oil marketers, it is advised you register your company to give you a more professional outlook. Registering a company makes you look more trustworthy to the buyer and seller.
After registration, you can search for genuine oil marketers who are ready to work with oil brokers and offer a commission. You can search for them on the internet and make a call as an oil broker to see if they accept such.
You can also partner as a broker with a company who has a crude oil allocation from the South Africa National Petroleum Commission (NNPC). These companies are allocated a fixed number of barrels for a certain period of time and they easily accept crude oil brokers and offer commissions for sales executed.
Step 3: Find Buyers
The next step to take is to search for crude oil buyers. Getting a buyer is quite easy if you are able to easily convince them of a better price than what their current suppliers are offering.
However, in reality, it is quite a tough job to convince large-scale consumers to purchase from the company you are promoting.
Step 4: Link Your Client to the Seller
The buyer would send a letter of intent based on the number of liters or barrels that have been agreed to the crude oil seller through your company. Upon confirmation, the seller would send either a corporate offer or the final contract.
Step 4: Shipment
The seller would purchase the crude oil from the NNPC on the delivery arrangement agreed and ship the oil to the buyer’s location.
Step 5: Execution
After the deal has been executed and the crude oil seller has received payment, you will be paid a commission per barrel. It could be $1 per barrel or whatever amount that was agreed between you and the seller.
Crude oil brokerage is a very lucrative venture if you are able to get a large-scale consumer who buys in millions of barrels. For example, if your buyer purchases about 2 million barrels of crude oil, the seller would pay you about $2 million or more in commission, depending on the amount agreed.
Challenges of Crude Oil Brokerage Business in South Africa
While the business might be a profitable venture, it does come with a handful of challenges you would want to consider before venturing into it.
- Getting a crude oil buyer to trust and buy through you is quite difficult due to the high number of fraudsters who have taken over the line of business.
- You could waste a lot of time conversing with crude oil buyers who will end up not making any purchase.
- You could easily get sidelined by both the buyer and the seller
In business, everything depends heavily on your ability to network and market yourself and when venturing into crude oil brokerage business in South Africa, you will be required to bring out your best and earn trust to ensure you make big returns. Your reputation is very valuable and will determine if you will be able to succeed as a crude oil broker.