by Keila Nakasaka

Created on: September 29, 2008

The D2 oil is a type of a diesel fuel. I'm not certain of the origin of the term "D2." My conjecture is that this term is of Russian origin, and possibly a term that's used exclusively in the "secondary" market, or what I refer to as the "questionable" market.

Diesel fuel is a commodity that's extensively traded throughout the world, and there are certainly legitimate transactions. However, there's a much darker side to this business that's peddled by scam artists in the "secondary" market.

In short, my meandering in this business for a period of two-three weeks, has lead me to believe that the D2 Russian oil business is glutted with fraud. The broker industry teems with unscrupulous characters, so much so that it reeks of a foul stench.

There are at least two types of transactions for this commodity: Contract and Spot. Contract refers to a binding agreement to provide for a specific term such as 12 months, where as Spot refers to an existing product on a much shorter term (less than one month). The reference prices of these products are determined on a daily basis. The quotes provide an indexation reference for the calculation of the price of all the different crudes produced worldwide. The purchaser of a cargo makes contact with a seller with whom he negotiates a price differential against the crude reference price: for example, for a crude of lower quality than Brent crude, a price of "Brent discounted 10 cents".

The three major spot markets for crude correspond to the zones of influence of the three major reference crude oils. They are:

- The London market for the Brent zone (Europe and Africa);

- The New York market for the West Texas Intermediate (WTI) zone (North and South America);

- The Singapore market for the Dubai Light zone (Asia).

There are numerous refineries in Russia that produce this product. People refer to Lukoil, Roznet, and Gazprom as refineries when in fact, they are energy companies that own refineries. All of these companies I mentioned are owned by the government. Most of the energy companies do not sell directly. Instead, they use trading companies. Vitol, Glencore, and Gunvor are the major oil trading companies with offices in Geneva. The others are:

Lemvig Oil Trading SA
rue du March 28
1204 Genve, Switzerland
+41 22 311 11 28

Totsa Total Oil Trading Sa
route de l'Aroport 10
1215 Genve, Switzerland
+41 22 710 11 12
+41 22 710 11 10 - Fax

Sempra Oil Trading Srl
rue du Cendrier 15
1201 Genve, Switzerland
+41 22 716 70 00*
+41 22 716 77 77* - Fax

http://www.mercuria.com

The

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