The global fossil fuel market is very complicated. This arises from the status of oil as the leading source of energy throughout the world. Fossil fuels were behind the industrialization of the global economy. The fuels continue to play a significant role in the global economy today. Oil is one of the most important fossil fuels because all countries in the world use it for economic development. The oil trade is one of the biggest commercial undertakings in the world today. The oil industry needs various players to ensure that oil moves from oil wells to internal combustion engines. This paper focuses on the trade in crude oil in Russia. In particular, it explores the direct sales of crude oil in Russia.
Global Oil Business
The global oil business has several facets. The first level of the global oil trade is oil prospecting and mining. The prospecting stage is the riskiest portion of the oil business. Oil prospectors identify sites that have the highest potential for oil, and then they dig exploratory wells. These companies usually have contracts that spell out the returns due to them if they strike oil. In many cases, the exploratory firms retain controlling interest in the oil extraction business that follows successful oil discovery. In other cases, they sell this interest to oil extraction companies based on the size of oil deposit.
After extraction, crude oil goes to oil refineries for the production of fossil fuels. The fuels extracted from crude oil include kerosene, diesel, and gasoline. Other products include petrochemicals used in chemical industries to develop various products.
Crude oil is a commodity. Commodities refer to products that have similar qualities regardless of their source. Strictly speaking, the quality of crude oil varies from one well to another. However, the differences are not large enough for commercial differentiation of crude oil. In this regard, crude oil marketers use price as their bargaining chip to sell their crude. However, there is a high demand for crude oil across the world so traders still get good prices for the product.
At a commercial level, crude oil buyers bid for oil from various wells. After winning supply contracts, the buyers sell the crude oil to oil refineries. The crude oil buyers may also have their own refineries depending on their business model.
Apart from direct trade in crude oil, some traders also participate in the crude oil business by purchasing crude oil futures. This model involves the buying of crude oil at a future price. In this case, the buyer is sure of getting the crude oil at a given price regardless of actual differences in the market price of the crude. This is very similar to trading in stocks and securities. In all these cases, direct sale is necessary because all the traders need intermediaries to handle the intricacies of the crude oil trade.
The Russian Business Environment
Russia is a very dominant player in the oil market. The country is one of the largest exporters of both crude and refined oil. It is also the leading exporter of natural gas and petrochemicals. The main export destination for Russian petroleum products is Europe and Asia. However, Russia’s petroleum export business spans most of the world. The Russian market also consumes a significant portion of the country’s petroleum production. However, most of its production goes to export destinations.
The general business environment in Russia is very challenging, especially for foreign owned companies. Russians are generally aggressive in business. Their companies deal aggressively with competitors, especially foreign competition. Another aspect of the Russian business environment is that business and politics have close links. Russian socialist heritage still influences some of the attitudes towards business. In this regard, political correctness is a part of the reality of the Russian business environment.
In addition to these factors, the Russian legal environment is also unpredictable. While the country has clear laws governing business, the application of those laws tends to follow loyalty rather than legal merit. It is possible to lose a business dispute with another party based on other factors apart from legal merit. This calls for care and discernment when handling business disputes.
The description of the Russian business environment shows that the direct sale of crude oil in Russia requires tact. It is vital to develop and maintain relationships with various players across the industry. It is also important to retain reputable legal services to take care of any eventualities. Clearly, this calls for skills in relationship management, in addition to negotiation skills.
Impact of Globalization on the Russian Oil Industry
The third main aspect that requires attention is the impact of globalization on the Russian oil industry. Globalization is influencing the Russian economy, and by extension the crude oil business in various ways. It is more accurate to view the global crude oil market is a global one, rather than as a collection of many regional markets. This is because of the standardization of crude oil purchasing agreements, in addition to pooled sourcing of crude oil from various sources. Organizations such as OPEC make the procurement of oil a global affair. Buyers do not have exclusive supply contracts with any country, but rather they have several contracts with different suppliers to reduce their exposure to supply disruptions. This means that direct sales of crude oil calls for an understanding of the global crude oil supply chain.
The second issue relates to global warming. Environmental scientists believe that the use of crude oil since the industrial revolution is behind the high carbon content in the atmosphere today. The industrial revolution led to the refinement of crude oil to supply industries with a source of energy. In addition, the revolution paved way for the production of machines that use petroleum fuels. Today, fossil fuels are the main source of energy for cars, trains, and generators across the globe.
Russia is not very strict when it comes to emissions in comparison to other developed countries. However, the pressure exerted by lobby groups will lead to greater restrictions on carbon emissions. This will affect the crude oil business. In the context of direct selling, it is important to note that the place of crude oil in the world is changing. The current demand for crude comes from the need to use petroleum fuels because there are no competitive alternatives to crude oil. However, oil is no longer an ideal fuel in the context of global warming. It is a dirty source of energy.
Russia does not import any crude oil because its crude oil production is sufficient. This limits the sources of crude oil available for direct sale. The government closely controls the Russian oil industry owing to the strategic nature of oil in the current global economy. In this regard, direct sales of crude oil in Russia require interaction with state and regional authorities.
Direct Selling Approaches of Crude Oil
The analysis presented in the sections above reveals the need to understand the most promising direct selling approaches of crude oil in Russia. This section reviews these aspects with the view of developing a best practices approach for the direct sales of crude oil in Russia.
First, it is important to note that Russia does not import any crude oil because its production is sufficient for local consumption and for export. In this sense, the direct sales approach of crude oil within Russia focuses mainly on the local market. The local Russian market is very huge.
The second issue in the Russian crude oil trade is that the country exports crude oil. In this regard, the domestic market is not the only market for Russian crude. Therefore, it is possible to participate in the direct sales of crude oil in Russia destined for export markets. Many buyers use Russian contacts to access Russian crude supplies. With the growing global demand for crude oil, the business opportunities are growing.
Thirdly, in order to participate in direct sales of crude oil in Russia, it is vital to develop and maintain a list of contacts within government and in the oil industry. These contacts can help to negotiate deals and to deal with common problems experienced by traders in the crude oil business. These contacts also serve as point men because they can help one to identify potential problems associated with crude oil supplies. In addition, having good contacts helps one to avoid fraudulent deals. Then Russian crude oil market has many unscrupulous business people who can defraud a naïve crude oil direct salesperson.
Fourth, it is imperative to retain competent legal services before engaging in crude oil direct sales in Russia. It is very easy to commit an economic crime in Russia if one does not understand the legal environment surrounding the oil business. Access to legal advice from a lawyer or a law firm that understands the Russian crude oil market can make the difference between a successful enterprise and one engaged in illegal trade.
Finally, it is imperative to stick to internationally accepted ethical standards when engaging in the direct sale of Russian crude oil. In fact, this advice goes to anyone who trades in Russia. Russia’s legal system is very punitive when it comes to corruption and unethical business practices. At the same time, many unscrupulous businesspersons in Russia will induce a trader to engage in unethical business practices. While this can lead to greater profits, it is often a self-defeating method of conducting business because it exposes one to disrepute.
In conclusion, the direct selling approach of Crude in Russia is an effective way of selling crude oil. A basic understanding of how the global oil market works is necessary for success in the crude oil business in Russia. However, the crude oil business in Russia has many challenges and pitfalls. In this regard, it is important to create a robust strategy before engaging in the direct sale of crude oil in the Russian market. This will guarantee profitability in the long term.