According to the Financial Times, Trafigura and Natixis are teaming up to see if blockchain technology could be used to settle deals made in the U.S. oil market. Trafigura is a Singaporean commodities trading company with annual revenue in the area of $100 billion, so the incorporation of blockchain into its lines of business could have significant implications for many types of trading. Analysts are looking at whether digital technology like blockchain, which was initially developed as a means of tracking and closing Bitcoin sales and transactions, could be used to dramatically change the way that barrels of crude oil are purchased and sold on the market.
Cheaper and More Secure?
Proponents of blockchain technology argue that its incorporation in other areas outside of the world of cryptocurrency will make for cheaper and more secure means of settling a variety of different kinds of transactions. For the time being, though, blockchain has remained on the outer edges of traditional finance. That is where Trafigura and Natixis, the French bank, come in.
Trafigura and Natixis have been experimenting with blockchain simulations since last November. These simulations run the trading company's existing crude deals which are dependent upon Texan pipelines. Their hope is that blockchain could be used to reduce the burden of transferring various documents related to credit, inspection, and contracting, among other things. Typically, when one company purchases a quantity of oil from another, a slew of paperwork must accompany the transaction. This paperwork necessarily takes time and energy to complete. If blockchain can streamline this process, transactions could be done more quickly and with less preparation time in between.
Reduce the Time Between Deals to Increase Flexibility
According to Arnaud Stevens, the head of global energy and commodities for Natixis in New York, blockchain may also be able to reduce the working capital that Trafigura traders require in order to be able to cover the cost of oil in the process of transactions. This could be accomplished by reducing the amount of time from the beginning of a deal to a full execution of the transaction.
The tests that Trafigura and Natixis have run so far are focused on the U.S. oil market. Mercuria, a Swiss-based trading outfit, has already used blockchain technology in oil deals between African countries and China, according to Reuters.
Blockchain's viability in the world of oil trading would depend in large part on the success that Trafigura, Mercuria, and other early adopters have in getting other traders and refining companies to get on board. While many see this as a way of saving costs and streamlining the transaction process, other companies may be less willing to shift their ways of conducting business.