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The market of oil products is a market of large, from the financial point of view, transactions and a market of intermediaries. And when there is a lot of money and a lot of intermediaries in the market, it unfortunately generates a huge number of frauds. There are always two historical disagreements between buyer and seller. The seller never wants to show the original documents for the goods before the buyer shows the documents that he has the money to buy the goods, for fear that the buyer is not real. And the buyer does not want to show the money in his bank accounts before the seller confirms the availability of his goods by documents or visualisation, because he also fears that the seller is not real. And, unfortunately, most transactions start with this very disagreement.

Why doesn’t the seller want to be the first to show product documents?

Often intermediaries and fraudsters pretend to be real buyers. They come to the seller, claim to be buyers and take a full package of documents for the goods from the seller. But they do not have the purpose of buying the goods by getting the documents. In the best case, they start sending the documents to all their potential customers and offer to resell the goods, thus making the confidential documents available to the public. In the worst case, the fraudsters who have received the documents for the goods, go to other clients and tell them that it is their goods, get prepayment from the clients for the delivery and disappear. Deceived customers then come to the real owners of the cargo with claims, although the real owners of the resource and did not know that the fraudsters using copies of his documents for the goods, have already sold several times this product and collected money from customers. In order to avoid rehearsal risks, wasting time on fraudsters, suppliers are reluctant to show the documents for their goods and put a number of conditions to the buyer in order to check whether the buyer is a real buyer.

Why don’t buyers want to be the first to show the availability of money for purchase, whether they have ships to load or leased oil storage facilities in the port?

For the same reason as sellers – buyers fear that they are in contact with a fake seller. Buyers fear that they are not negotiating with the real owner of the petroleum products, but with an intermediary or a fraudster. There is often a situation when a customer gives the seller a bank statement that he has tens of millions of dollars in his account for the purchase as proof of his financial capabilities. But the supplier turned out to be not real and just a middleman, who starts “running around the market” waving bank documents in search of goods for this client and send this statement to different counterparties. In the best case, the distribution of confidential bank documents is fraught with the company problems with its banks and rehearsal risks, but there are much more sophisticated fraud schemes, when because of their trust buyers get direct losses. Therefore, buyers are reluctant to show their bank, ship and oil storage documents until they are sure of the supplier.

There are a lot of well known companies on the market, both buyers and sellers, with world renowned reputations that do not need to be checked and their reputations speak for themselves. But then again, big world famous buyers purchasing large volumes will never pay a seller too much, just as big world famous sellers with a name and reputation will never sell their goods at throwaway prices. So buyers will always keep looking for new sellers with lower prices, and sellers will always keep looking for new buyers who will pay more.

"Our observations suggest that the market for petroleum products is a sellers’ market. Sellers try to impose their procedures and conditions, while buyers enter the negotiation process trying to soften the requirements and conditions of sellers."

According to our estimates, 70-80% of the petroleum products market are long-term multi-year contracts, established relationships between the major whales of the industry. But there is always 20-30% of the market of active transactions, where everyone is looking for profit and good prices, and therefore this zone of deep turbulence. In order to organise this turbulent sea of sellers/buyers, the practice of drafting transaction procedures has been developed, so that the parties before the start of the transaction would prescribe clear rules of the game between themselves.