In this business you are your own worst enemy. If you want to be successful in the fuel business, you need to put your ego aside and be as transparent as you can. If you don’t believe in the end user that you happen to be close to, even if you are not so close which is usually the case, walk away. Find a new relationship. Search. Google. Read. Do your research. Be familiar with the products and the prices of those products you want to be involved with and the way the deals are closed.
What are the actual procedures that actual buyers and sellers use to close deals?
This is the most important piece of information you need if you want to close deals. Know your buyers and sellers and exactly how they want to transact. Know what kinds of procedures will work and what will never work. Some procedures are workable but will not work for every buyer. Some buyers have completely unreasonable procedures that will never work for any seller. Some sellers, or more often re-sellers, will have requirements that no buyer will accommodate. If you don’t know what works and what is impossible, you will spin your wheels and no matter how much spaghetti you throw against the wall none of it will stick.
CI, DIP AND PAY OR DON’T TALK TO ME
The reality is, dip and pay deals are not something you will ever close. These deals come about when an end user takes title and has fuel delivered with a buyer already lined up and for whatever reason the buyer pulls out. Now the title holder has the fuel sitting in tanks somewhere and is paying outrageous storage fees to keep it there. In desperation, they unload the fuel sometimes at a loss. Usually large entities such as fuel companies and airports buy these products through their own trading desks and no brokers get paid on the deal even if they are in some way involved. Traders use all kinds of tricks to circumvent brokers and take all the commissions for themselves with no chance of repercussions and no recourse options available to those excluded. One trick they will use is to setup a shell company for the sole purpose of the transaction. After the transaction is completed, they close down the company. There are many other tricks of the trade they know and you don’t.
Bottom line, don’t even bother. Unless you have a close relationship with those involved with the transaction and truly trust everyone involved, chances are you will not see a dime. By the way, having a close relationship with someone does not mean someone you met on the internet.
If a buyer really wants to buy fuel he should no problem showing that he has the funds to do so. If he can’t show the funds for the first lift, he doesn’t have the funds. Most so called end buyers are actually resellers. Someone that has an actual buyer lined up and will immediately resell at a lower discount. They will have to have POP documents in order to activate their credit lines but do not have the liquid assets to buy the product.
What about prices?
Up to date prices for refined fuel products are not easy to come by. Do some Googleing for yourself and you will not find an easily displayed chart of NWE Platts prices anywhere. You could pay to have these prices directly from Platts, but the upkeep of keeping yourself up to date in this way is prohibitively expensive. You should at least have a general idea of what discounts are reasonable for the type of transaction you are dealing with. Different kinds of sellers will have various discounts that go along with their procedures.
Dealing with refineries
Refineries from all over the world offer production allocations at very attractive discounts. There are a few challenges when entering into a deal in which there is a refinery involved. One aspect that is not very attractive to any end buyer is time. Production contracts take time to deliver the first lift and most buyers cannot have their credit lines open long enough to take delivery. Another challenge will be procedures. Generally, a refinery will require some kind of POF up front to ensure they are getting paid and to securitize the transaction. This is a problem for most buyers who are in fact resellers.
The way forward
As I said, if you want to be successful, be transparent. Whether you are close to the buy side or close to the sell side, you need to communicate clearly with the other side about your requirements from the start. Hopefully, the people you are dealing with are at least as knowledgeable as you and know how their end user wants to do business as well. If you see there is no way forward right from the start, walk away. On to the next. Don’t waste your time, don’t waste other people’s time.
Leave your ego at the door. You don’t need to try to tell people how you think this business works. They don’t want to hear it. If you don’t see a mutually agreeable way forward, thank the person for their time, wish them luck and be on your way.