What Does an Oil Broker Do?
An oil broker is a paid intermediary who arranges transactions involving the purchase and sale of crude oil. In most instances, brokers are licensed securities traders and some brokers work at market exchanges while others conduct remote trades over the telephone or the internet. As with most brokers, many of the people involved in oil trading have college undergraduate degrees.
Investment companies often recruit college graduates who completed degree programs in topics such as finance to work as brokers. Some companies tend to hire people who have completed post-graduate degree programs in mathematics related topics since these individuals should be capable of making quick calculations involving large sums of money and big quantities of oil. In other instances, brokers are high school graduates who rose through the ranks of an investment firm after performing well in more junior sales related roles. Typically, brokers have to attend regulatory training classes and then pass a securities licensing examination before they can begin trading. Regardless of academic credentials, an oil broker must have good sales and organizational skills.
Energy firms ship crude oil to refineries where impurities are removed and the finished product can then be sold to companies that convert the oil into gasoline, diesel or even plastic products. An oil broker representing a refinery or an energy producer must find a buyer that is willing to purchase the refined oil. Like any sales agent, these brokers attempt to negotiate the best deals for their clients which means that brokers representing sellers always try to sell the oil for a high price. Manufacturing firms and companies that operate gas stations also employ brokers and these brokers attempt to negotiate the lowest possible price for the oil.
In some instances, the price paid during an oil trade is based upon supply and demand as buyers are unwilling to pay more than the going rate for commodities. Many trades involve futures contracts in which case the two parties arrange a deal whereby the seller agrees to sell barrels of oil to the buyer for a set price at a specific date in the future. Buyers use futures contracts to lock in low prices when the cost of the commodity seems set to rise. Sellers favor futures contracts when oil prices seem likely to drop. No one can accurately predict price movements in the commodities market, so futures trades are quite common; one party may have a negative or bearish view on price movements while the other party may have a bullish or positive opinion.
Like other securities traders, an oil broker is paid on commission. Additionally, many brokers supplement their earnings by investing their own money into the oil market. These brokers use their knowledge of the industry to try and make money by buying and quickly selling barrels of oil without ever having to take possession of the commodity. Brokers who generate money in this manner are commonly referred to as speculators.