The Ultimate Guide To Starting A Crude Oil Brokerage Business (Crude Oil Selling) In Nigeria And Africa
The global demand for crude oil has only continued to climb over the years. From the 1800s till now, this commodity has been the major source of income for many nations, oil & gas organizations, and even crude oil brokers.
In Nigeria, it is the holy grail of the country’s economy. A shift in its global price sends the nation nose-diving into a recession. But despite this, the country has a crude oil production capacity of about 2.5 million barrels a day, leaving Nigeria as Africa’s largest producer of crude oil and the sixth largest producer in the world.
The implication of these figures show that Nigeria’s excessive crude oil deposit and extraction activities have created a major business opportunity for people who intend to venture into the crude oil brokerage business in the country.
By far, crude oil brokerage is one of the most profitable oil and gas segments for entrepreneurs who have no money to venture into the trade. Since it involves arranging a transaction for a commission of about $1 per barrel, it makes it an excessively lucrative venture for crude oil brokers who land major crude oil supply contracts.
According to the oecd.org, “Crude oil production is defined as the quantities of oil extracted from the ground after the removal of inert matter or impurities.”
This mineral oil is usually between yellow to black in colour, contains a mixture of hydrocarbons, and has a variable density and viscosity.
Crude oil brokerage is the arrangement of a transaction between a crude oil buyer and a crude oil seller for a commission when the deal is executed. A crude oil broker who acts as a seller or buyer becomes a principal party to the crude oil transaction.
Here, the broker initiates the deal between a crude oil buyer, which is mostly an oil trader or refinery, and the crude oil seller, which in this case, is the company buying from the Nigerian National Petroleum Corporation (NNPC) to resell to the international buyer, or the oil regulatory body of the country you reside in.
- You’re only brokering a transaction between a crude oil buyer (oil trader or refinery) and a crude oil seller (the company getting crude oil from the NNPC).
- The buyer would be asked to show proof of finance before shipment is made.
- The crude oil broker is paid about $1 per barrel sold by the crude oil seller.
- You can venture into crude oil brokerage by partnering with a person who has an allocation from the government or that buys on OFF-OPEC basis.
- As a crude oil broker, you can venture into this business with $0.
- Nigeria produces one of the most demanded crude oil in the world: Bonny Light Crude Oil (BLCO).
- Some other crude oil products in Nigeria include Qua Ibo, Escravos blend, Brass River, Forcados, Pennington Anfan, and over 15 more light crude oils.
- Crude oil is measured in barrels.
Business Opportunities In Crude Oil Brokerage
Before venturing into the crude oil brokerage business in Nigeria or Africa, there are some terminologies you must know, which also defines the various opportunities within the petroleum sector with respect to crude oil trading. These includes:
1). Free On Board (F.O.B):
In this situation, the crude oil seller will load the vessel with the petroleum products and cover the cost of clearance, while the crude oil buyer will cover the cost of transportation after making payment. This is the model the Nigeria National Petroleum Corporation (NNPC) uses to handle crude oil sales from everyone.
2). Tanker Take Over (T.T.O):
In this situation, the crude oil buyer takes over the hiring of the vessel and all the products onboard.
3). Tanker to Tanker Transshipment (T.T.T):
In this situation, the crude oil buyer will hire their own vessel, then use it to tranship the products from the crude oil seller’s vessel.
Setting Up Your Crude Oil Brokerage Business
Step 1: Register A Company
Before you venture into the crude oil brokerage business, you should first register a company. By doing this, you form a legal structure that separates your personal liabilities from your business’s.
Step 2: Identify A Firm With Crude Oil Allocation Or That Purchases On PLR Basis
After registration, partner up as a broker with a company who already has a crude oil allocation from the NNPC. Having a crude oil allocation means you have a fixed allocation issued to you for a fixed amount of time. This could mean having 20 million barrels of crude oil allocated to a business for a period of one year.
The largest problem the industry faces is most allottees don’t have the funds to even fulfil their allocations, and as a result, are always welcoming crude oil brokers who are ready to trade through their allocations for a commission.
Another way is to broker for companies who sell on OFF-OPEC basis. Those who legitimately do this purchase the crude oil on Provisional Lifting Rights procedures, at a discount, and ship to the crude oil buyer at a discount.
Step 3: Find A Crude Oil Buyer
After forming a partnership with a crude oil seller, the next step is to find a crude oil buyer. Organizations who buy crude oil products are oil traders and refineries, and as a result, are constantly on the lookout for companies that can meet up to their supply needs.
You can reach out to them via their company’s phone numbers, emails, LinkedIn, or even via recommendations.
Step 4: Link Them To The Crude Oil Seller
Now you’d need to ensure they send a Letter of Intent based on what has been realistically agreed, and it should be addressed to the crude oil seller through your company. After which the crude oil seller could either send a Corporate Offer or send the final contract.
Step 5: Crude Oil Seller Ships The Oil To The Crude Oil Buyer
Now the crude oil seller would purchase the crude oil from the NNPC on FOB terms and ship the oil to the crude oil buyer anywhere they are in the world.
Step 6: You Are Paid About $1 Commission Per Barrel Sold
After shipment is complete and the crude oil seller has received payment, depending on your agreement with the crude oil seller, you could earn up to $1 per barrel, which the company would then credit your company’s bank account. If your banking coordinates were listed in the contract, the crude oil buyer would also pay your commissions directly.
The interesting part of the crude oil brokerage business is most supplies are always in millions of barrels. So if your transaction covered 1 million barrels of crude oil, for instance, the crude oil buyer would pay about $1 million Dollars in commissions, since commission could be around $1 per barrel. Since there’s usually a total commission of about $4 to be paid in every transaction, if you’re not in a long list of brokers, you could earn up to $1 per barrel, making it a full $1 million Dollars.
If you’re lucky enough, you could get a much larger contract that covers a monthly supply to the crude oil buyer for a period of time, possibly running into years.
The high returns from this venture make it one of the most profitable oil and gas business opportunities in the world because as a crude oil broker, you only require $0 to run your operations.
Challenges Of The Crude Oil Brokerage Business
1). It’s difficult to find real OFF-OPEC crude oil sellers that will agree to reasonable transaction procedures.
2). Your time could be wasted as a result of long-term conversations with refineries who have no real money to pay.
3). Getting a real crude oil buyer to show a Proof of Finance (POF) can be difficult because most of them can’t secure the credit facility they need to enable them to purchase crude oil
4). The large pool of fraudsters and illiterates posing as crude oil brokers makes it difficult for crude oil buyers to trust you.
5). You could easily get circumvented by the crude oil seller and crude oil buyer.
The crude oil brokerage business is an oil and gas business where success is heavily based on having a wide network, carrying out smart marketing, and being trustworthy & knowledgeable through the entire process. By building a strong reputation and always delivering on your promises to your clients, you’d succeed a whole lot easier.
What are your thoughts on this complete guide on how to start a crude oil brokerage business in Nigeria? Let me know by leaving a comment below.
This article has been updated for better clarity of content
The Reality Of The Nigerian Crude Oil Trading Industry
Buying crude oil from Nigeria can be very tricky and dangerous on the part of the crude oil buyer. The volatility of the industry and its extreme profit potential has created room for fraudsters to go on a scamming spree. This is why it is highly unadvisable for crude oil buyers to seal deals via phone calls or the internet.
The risk involved has kept a lot of crude oil buyers from making transactions pending when they can find real crude oil sellers in Nigeria.
Another thing to note is the purchase of OFF-OPEC oil is not immediately verifiable, although achieved through official channels if the crude oil seller is buying based on provisional lifting rights.
Nigeria, being a part of OPEC, must always conform with the rules and regulations of the international body, and as such, has a standard limit they must always produce and sell. But despite these restrictions, it’s largely rumoured that the country produces well over 4 million barrels of crude oil a day. Leaving questions as to where the excessively produced barrels of crude oil actually goes to.
This place is called the Private Offering/grey/OFF-OPEC Market. It is a low-key market where crude oil sellers (real sellers now) are selling crude oil products to refineries and resellers located all over the world. All these sales are closely supervised, as they’re largely sold from the excess crude oil production in the country.
This excess unallocated oil is where the bulk OFF-OPEC crude oil sales are made from.
In essence, you can’t make any crude oil deal happen without involving the NNPC. The NNPC is the official organization allowed to sell crude oil in the country. So the crude oil seller buys from the NNPC on FOB basis and ships to the crude oil buyer on CIF basis.
The NNPC also publishes procedures for crude oil buyers to purchase from them directly, but the politics that’s heavily involved leaves most crude oil buyers better off with using crude oil sellers in the country who have already figured it all out. In the end, the successful execution of a purchase works with a crude oil seller who has connections with the right people in government.
Also, you have to be careful with the shipments, as there are many ways to get a far shorter supply of crude oil than requested. They use various dubious methods to manipulate the volume of crude oil loaded onto the vessels, and as such, when it’s supplied, you realize you didn’t completely get what you paid for.
Lastly, time can be greatly wasted on the end of both the crude oil buyer and the crude oil seller. Sometimes a conversation will go on for so long, only for the crude oil buyer to eventually not have the money to make payments. The same also applies to the crude oil seller; they could also default on their commitments.
This means that for every truly genuine transaction that occurs, every party involved ensures they’re both protected, so they can have a fruitful business relationship over the period of the contract length.
So if you’re a crude oil buyer and are looking for means to push through a genuine crude oil supply contract, you can contact Startup Tips Daily Media through her sister company, Globexia, to help you locate genuine crude oil sellers in Nigeria, especially for Bonny Light Crude Oil.
If you have a crude oil supply mandate and are having problems locating real crude oil sellers in Nigeria; whether in the Niger Delta region, Lagos, or Abuja, we’d be glad to help you find crude oil sellers so you can complete your transaction.
No upfront cash transactions are required in the process, and as such, every party’s interests are secured through a contract, and successful transactions are executed through established and legitimate banking channels.
If you’re a genuine crude oil buyer, crude oil buyer mandate, crude oil seller, or crude oil seller mandate, you can reach out to us through the contact form below. If you’d like us instead to represent your interests as your crude oil seller mandate or crude oil buyer mandate, we’d be glad to do so.
In addition to our crude oil brokerage business in Nigeria, we’re also AGO sellers in Nigeria (diesel suppliers in Lagos), and can supply AGO to tank farms, private or government organizations in Nigeria, or to countries like Cameroon, Ghana, and more, in the West African coast, while we remain willing to also represent your interests as your AGO buyer mandate or AGO seller mandate.
If you’re only a scam, don’t waste your time, as the conversation wouldn’t last too long after a few questions and demands to prove your authenticity have been made from our end.
We look forward to hearing from you.
You can reach us through the contact form below.