A paid intermediary who arranges transactions involving the purchase and sale of crude oil is known as an oil broker. Brokers are licensed securities traders in most cases, and some work at market exchanges while others conduct trades over the phone or over the internet. Many people involved in oil trading, like most brokers, have a college undergraduate degree.
Investment firms frequently hire college graduates who have completed degree programs in finance to work as brokers. Some companies prefer to hire people who have completed post-graduate degree programs in mathematics-related subjects because these people should be able to quickly calculate large sums of money and large quantities of oil. In other cases, brokers are high school graduates who worked their way up through the ranks of an investment firm after excelling in lower-level sales positions. Before they can start trading, brokers must typically attend regulatory training classes and pass a securities licensing examination. An oil broker, regardless of academic qualifications, must have strong sales and organizational skills.
Energy companies ship crude oil to refineries, which remove impurities before selling the finished product to companies that turn it into gasoline, diesel, or even plastic. A refinery or energy producer’s oil broker must find a willing buyer for the refined oil. These brokers, like any salesperson, try to get the best deal for their clients, which means that brokers representing sellers will always try to sell the oil for a high price. Brokers are employed both manufacturing and gas station companies, and their job is to negotiate the best possible price for the oil.
Buyers are unwilling to pay more than the going rate for commodities, so the price paid during an oil trade is sometimes based on supply and demand. Many trades involve futures contracts, in which the seller agrees to sell barrels of oil to the buyer for a fixed price at a future date. When the price of a commodity appears to be rising, buyers use futures contracts to lock in low prices. When oil prices appear to be on the decline, sellers prefer futures contracts. Because no one can accurately predict price movements in the commodities market, futures trades are common; one party may hold a bearish or negative view of price movements, while the other may hold a bullish or positive view.
An oil broker, like other securities traders, is compensated on a commission basis. Many brokers also supplement their income investing their own funds in the oil market. These brokers use their industry knowledge to try to make money buying and selling barrels of oil quickly and without ever having to take possession of the commodity. Speculators are term used to describe brokers who make money in this way.