Thank you for my EDGE-ucation

September 1, 2020

Our founder Gideon, explains how sometimes being thrown in to the deep end can give you the best 'EDGE-ucation'...

“Gideon! Set up the deal economics for this deal. We are buying Gasoline ex-panama and selling into ARA. This is a combi-cargo with the distillates bench, pro-rate the freight and make sure you account for 2 days of demurrage! I haven’t booked the sale yet but please put in the usual margin. Oh and by the way, you are moving to India for two years.”

I thought doing my chartered accountancy exams were tough until I was thrown into the “Deals Desk” / Market Risk function at Trafigura in Mumbai.

Physical trading is complex.

Learning market risk is the key to understanding how a physical commodity business works. Trafigura are a physical commodity trading house and my six years there was the start of my “EDGE-ucation” and where my love affair with oil began.

I had exposure to physically moving barrels of oil from one place to another around the world. There are real people and real risk involved. There are huge vessels with a captain, a crew, ports, operations and logistics that all need to be considered. Market conditions are constantly moving and as a result your trading strategy will change. Understanding freight rates, outturn gains & losses, demurrage, temperature differences, quality and quantity differences, delivery dates, pricing terms, Platts and insurance. These terms will all sound familiar for a petrol retailer.

I’ve since asked myself “What is the difference of a physical commodity trader buying and selling a VLCC (Very Large Crude Carrier) of crude oil and a petrol retailer taking a 10,600 gallon tanker of diesel and gasoline and selling it?” The answer is very little as the fundamental economics are the same.

Both a physical commodity trader and a petrol retailer need to understand the deal economics and the associated costs of buying & selling their respective cargos;

  • What is my landed value or my blended cost?
  • Are we pricing using Platts?
  • What cash have I got tied up in stock and what is the cost of this to me?  
  • What margin / profit do I want to try and achieve?
  • What’s my sales price, do I have any competition do I need to adjust this sales price?
  • Do I have any bank covenants or margin targets that I need to achieve?  

Although they operate at different scales, the thought process and the questions are identical. Both the physical commodity trader and the petrol retailer are working on very thin single digit margins and both want to maximise their volumes.  

This is where the concept of EdgePetrol was born. Applying my learnings of physical commodity trading to a petrol retailer.

By using multiple data sources, can we help a petrol retailer buy and sell better? We think so.

Thank you to my Trafigura God-Fathers, my mentors, and friends who pushed me outside my comfort zone and taught me my EDGE-ucation.

Jonathan BrownDaniel ZhaoChris LewisRaoul-BajajAnand BSimon CollinsJohnny HourihaneAndrew HortonWilliam LovettMark TrumanPete CattellLarry CohenClive ThomasDavid Rayner