Oil trading – unlocking the mystery

FullSizeRenderThe Consilience Guide Set
Trading Crude Oil – the Consilience Guide by Liz Bossley & Trading Refined Oil Products – the Consilience Guide by Catherine Jago and Liz Bossley

The Consilience Guide Set comprises two books, covering the trading of crude oil and refined oil products.

The author of Trading Crude Oil and co-author of Trading Refined Oil Products is Liz Bossley, a founding partner of UK-based Consilience Energy Advisory Group, a privately owned energy consultancy company, and is an experienced oil industry professional and well respected consultant.

The co-author of Trading Refined Oil Products is Catherine Jago, a senior associate at Consilience Energy Advisory Group as well as CEO of CJH Energy Ltd.

The books can be purchased separately or as a set, but as (by necessity) there are some overlaps in content, they are best reviewed together. Indeed, for those readers wishing to gain insight into the whole life-cycle of oil trading, they would be best purchased as a set.

The two books cover the long journey of oil from the exploration and production of crude oil, through the refining process and eventual sale to end-users and consumers, with each stage being explained in good detail.

Each book breaks down the oil trading process into six sections, starting with an overview and context setting to give readers new to the oil industry a basic understanding of the worlds of crude and refined products. They then address and explain key areas and influencers of the trading process in clear and logical steps – such as trading logistics (from upstream through to pipeline/road deliveries), the refining process, crude and refined product qualities, as well as pricing mechanism and benchmarks and hedging.

Practical examples of hedging are outlined, and useful discussions provided around appropriate hedging and risk profiling. The books pose and analyse the questions of ‘hedge or speculation?’ and ‘strategic versus operational hedge’ and also offer invaluable insights into the methodologies used to set various oil benchmark prices – particularly Brent.

Written in an engaging style, the books help to make what could be a dry and technical topic both interesting and very readable. They impart authoritative general and technical information and provide insights into the mystical world of oil trading. They do not read as training manuals, which in his reviewer’s opinion is a positive! But can still serve as valuable reference manuals to be referred to as and when needed. They also share valuable pointers to those new to the world of upstream, the value of team work in oil trading and the potential pitfalls of options trading.

The key to Consilience’s world view of oil prices and how they believe fair value is determined is the concept of A plus T plus G, which basically means that the value of a crude oil or refined product is a combination of A (the absolute price of oil), T (the time differential) and G (the grade or quality differential). Whilst a trader would typically not consciously separate the value of oil into these three component parts (this reviewer is writing as a former refined products trader), these elements are somehow inherent in any determination of value. But the concept is an interesting one that can assist non-traders to understand the complex nature of how a grade of crude oil or refined product is given a $ value.

The target market of both books appears to be wide. They can be useful to new or prospective traders, oil industry professionals or CFO’s who are keen to understand what happens on the trading floor, or the layman who wishes to understand the “murky” world of oil. As the authors themselves state in the books, those not wishing to become bogged down in too much technical information can skip the chapters on oil qualities or refinery processes, yet still gain an excellent understanding of oil trading.

All in all, accessible and useful books which can be read and referred back to, but in the opinion of this reviewer not be used as training manuals to oil trading. Oil trading is not a science or something that can be learnt from a book – it has an element of art form – after all there are most certainly GOOD and BAD traders. In the same way there are good and bad guides to oil trading, The Consilience Guide Set falls into the former category and will be of interest and value to anyone interested in oil trading.

Review by Tracey Soar

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