The wildcatter holds a special place in everybody’s imagination when pondering a life in oil and gas. In fact, upstream as a whole gets most of the attention, while midstream and downstream activities get shucked to the side.
It’s a shame because you’ll find the midstream activity of trading is just as exciting as any other aspect of the oil and gas business. Here’s a few crazy facts about the world of oil and gas supply and trading.
- It may look like a well-oiled machine, but the supply system doesn’t process crude oil at a steady speed every day. We may think crude comes off the pipeline, gets refined, and goes straight in the gas tank all at the same speed, but we don’t refine crude as quickly as it comes in. Furthermore, consumers don’t pump gas as quickly as refineries make it. There’s a multitude of lags and inefficiencies in the system.
- A cargo of Middle Eastern crude can take 23 days to get to Japan and 40 days to get to the US Gulf Coast. Because of the risk of price fluctuations and even global conflicts, there’s a lot of things that could go wrong. If oil and gas wasn’t already risky, it is now!
- Studies show that oil, natural gas, and electricity prices are the most volatile of all the commodities. This is over products like wheat, sugar, platinum, and gold.
- JD Rockefeller realized that control of supply was everything in the oil and gas business, and by 1879 he controlled 95 percent of oil refining in the United States. This is unthinkable now due to antitrust laws.
- In the late 1800’s, New York hosted a Petroleum Exchange where businesses could buy futures contracts and hedge crude oil supplies. Today there’s a complex system of 24/7 exchanges, brokers, contracts, and options.
This is just a taste of the volatile supply and trading world. Thousands of decisions are made every single day as businesses try to outcompete one another on a global scale. This is the battleground of midstream activities.