ABSTRACT
Traders often get an inflated idea of their own importance. The technical skills involved in discovering oil deep in some filthy swamp or waterless desert and the engineering effort that brings the oil to the refinery should be rewarded. The initial competitive pressures came from the independents that struck oil in Libya. This new oil disrupted the carefully balanced supply structures of the majors. Incidentally, as a historical footnote, it was not just trading companies that became rich. Kuwait Petroleum Corporation, operating as a profit center separate from the Oil Ministry, managed to reallocate its crude portfolio and charge $5 per barrel premiums to their unfortunate customers. The concept of hedging, or risk management as it should more properly be called, is increasingly being seen as the correct approach. This is quite a revolution in thinking for the standard oilman. The financialization of markets has much the same effect on oil as it has on stocks, shares, and currencies.
