The crude oil traders, bargaining in millions

"This year Caltex intends to buy around 80 million barrels of crude oil, mostly light and heavy sweet crudes, at a cost of more than A$8 billion and delivered in around 135 vessels"

He hangs up, feeling satisfied. He's just concluded the purchase of a cargo of Kutubu – crude oil from Papua New Guinea. The other oil trader represents the seller, the Australian-listed oil and gas company Oil Search.

Geoff has agreed to pay "APPI Tapis" – a market reference price for regional light sweet crudes – plus a premium. The total price will be close to US$70 million and the deal is now locked in. The shipment will load between 26 and 30 May.

Next, Geoff passes details of the deal to Phil Manson, Senior Supply Scheduler and Charterer, and Andrew Parkinson, Crude Oil Scheduler. Phil is responsible for organising a ship to load the oil and bring it to Caltex; Andrew will schedule it into the refineries.

As is common, the cargo will be split between the two refineries. Caltex's Lytton refinery will get its share on 4 June and the Kurnell refinery the balance three days later.

Endless cycle

For Geoff and his colleagues in the trading office these negotiations are part of a cycle that Caltex, and Australia, rely on to supply the fuel products that keep industry and the economy moving.

This year Caltex intends to buy around 80 million barrels of crude oil at a cost of more than A$8 billion and delivered in around 135 vessels. It will mostly consist of light and heavy sweet crudes, which are best suited to Caltex's refineries. ("Light" and "heavy" refer to the crude's density and "sweet" indicates low sulfur.)

Today, in addition to the Kutubu cargo, Geoff has been negotiating another 350,000 barrel shipment of Tantawan crude from Thailand. This is an "arm's length" deal with Chevron Singapore for crude from a joint venture Chevron operates with a number of Thai producers. The price tag for this shipment: around US$35 million.

"In one night we've spent over US$100 million," says Geoff. "You can see why the trading operation requires careful planning and plenty of negotiating."

His team works closely with Chevron traders in Singapore. In fact from a trading viewpoint Caltex and Chevron – which owns 50 per cent of Caltex – present a united front. If Chevron has a strong link or relationship with a producer it will buy for Caltex and vice versa.

Geoff routinely works into the evening. Most of the traders he deals with are in Singapore, the market through which Caltex buys much of its oil for refining, and Singapore lags the Australian east coast by two or three hours depending on the time of the year.

Staying informed

A key part of Geoff's job is to stay informed. Like the stock market, the volatile crude market is influenced by events and sentiment. Caltex buys most of its crude oil from the region – mainly Australia (27 per cent) and countries including Vietnam, PNG and Malaysia (10-20 per cent each). But it has also recently begun buying crude from West Africa.

Disruptions to production, such as when cyclones hit the West Australian coast, can suddenly shut down facilities and tighten the market. "So we watch our newswire screens all the time for information that might impact supply," says Geoff.

Remembering back a decade the team was doing just that when they heard a news report about an explosion at Esso's Longford oil and gas facility in Victoria. They couldn't immediately find out what was happening, though early indications were that it was serious and likely to disrupt Gippsland crude supplies to Caltex. So the team immediately moved into the market and bought a lot of crude oil.

"As it happened that was the right thing to do," says Geoff as he turns back to his screen to check the Reuters news. "The Caltex refineries were able to keep operating even though Esso and BHP were unable to supply ten cargoes of Gippsland crude we'd ordered."

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