How Commissions Work in Petroleum Trading (Buyer and Seller Perspective)
Many buyers think avoiding intermediaries will automatically get them better prices. "If I can just go direct to the refinery," they reason, "I'll save all those commissions and pay less." But here's what usually happens: They contact three "direct from refinery" sellers, all claiming no intermediaries. All three quote $530/MT. Meanwhile, a transparent broker openly discloses a $10/MT commission and quotes $470/MT total. The "direct" sellers actually had hidden intermediaries stacked 3-4 deep, while the honest broker had one simple commission structure.
The petroleum trading world runs on commissions. They're not inherently bad – they're how intermediaries who provide legitimate services get paid for connecting buyers with sellers, handling procedures, and facilitating transactions. The problem isn't commissions themselves. It's hidden commissions and excessive markups disguised as "direct" pricing.
Understanding how commission structures work, what's normal, what's excessive, and when you should be suspicious will help you evaluate offers more accurately and avoid overpaying.
What Are Commissions in Petroleum Trading?
Commissions are fees paid to intermediaries – brokers, agents, and mandates – who facilitate petroleum transactions between buyers and sellers. Think of it like a real estate agent's commission. The agent doesn't own the house, but they connect buyer and seller, handle paperwork, coordinate the transaction, and earn a fee for that service.
In petroleum trading, intermediaries serve similar functions: sourcing buyers or sellers, verifying parties are legitimate, coordinating documentation and procedures, handling communications, and managing the transaction process. For this service, they earn a commission – typically calculated per metric ton of product.
Typical Commission Amounts
Commission rates in petroleum trading have become fairly standardized across the industry. For refined products like EN590 diesel, Jet fuel A1, and D6 fuel oil, you'll typically see $5-15 per metric ton. For crude oil, commissions are usually calculated differently – $1-3 per barrel. Occasionally you'll encounter percentage-based commissions of 1-2% of total transaction value, though per-ton rates are more common.
To put this in perspective: on a 10,000 MT order of EN590 with a $10/MT commission, the total commission pool is $100,000. That's why petroleum trading attracts so many intermediaries – the potential earnings are substantial on large volume deals. But that $100,000 gets split among all the intermediaries involved, which is why having too many layers quickly makes pricing uncompetitive.
Who Gets Commission?
Commission structures can involve intermediaries on one or both sides of the transaction. Buyer-side intermediaries include your broker, mandate, agent, or whoever brought you to the deal and helped facilitate it. Seller-side intermediaries similarly represent the seller and handle their side of the coordination.
Sometimes commissions are split between both sides. You might see a structure where the buyer pays $7/MT and the seller pays $7/MT from their proceeds, creating a total $14/MT commission pool. The exact split depends on how the deal was structured and who brought what value to the transaction.
The key is transparency – knowing who gets what and ensuring the total commission load doesn't make your price uncompetitive.
When Are Commissions Paid?
Here's a critical rule that separates legitimate deals from scams: Commissions are paid after successful transaction completion, never before. Specifically, payment happens after product is delivered, after the buyer has paid the seller, and after all parties fulfill their contract obligations.
The typical payment trigger is within 24-48 hours of the buyer's payment to the seller. The seller receives the full gross amount from you, then distributes commissions to all the intermediaries according to the agreed structure. Though variations exist, this "payment after completion" principle is non-negotiable in legitimate petroleum trading.
If anyone asks for commission payment upfront – before product delivery, before verification, or as a "fee to start the process" – that's a scam. Walk away immediately.
Gross Price vs. Net Price
Understanding the difference between gross and net pricing helps you read petroleum offers correctly and know exactly what you're paying.
Net price is what the seller actually receives after all commissions are deducted. If the net price is $460/MT, that's what hits the seller's bank account. It's their revenue before commissions get distributed to intermediaries.
Gross price is the total amount you pay as the buyer, including all commissions. If the gross price is $470/MT, that's what you wire to the seller. From that $470, the seller keeps their net ($460) and distributes the commission portion ($10) to intermediaries.
As a buyer, you care about the gross price – that's what comes out of your account. The commission is already baked into the number you pay. When you see an offer stating "Net $460/MT + $10/MT commission," you'll pay $470/MT total.
Example: $10 Commission Breakdown
Let's walk through a real example to see how the money flows.
You receive an offer for EN590 10PPM diesel, FOB Houston, priced at $460/MT net with $10/MT buyer-side commission. Here's what the numbers actually mean:
The seller receives $460/MT – that's their net revenue for the product. You pay $470/MT total – the net price plus the $10 commission. That extra $10/MT goes to the intermediaries on your side (your broker, mandate, or whoever brought you the deal and is facilitating the transaction).
Now scale this to a typical order size. On a 10,000 MT purchase, the seller receives $4,600,000 for their product. You pay $4,700,000 total. The difference – $100,000 – gets split among the buyer-side intermediaries according to whatever agreement they have. If there are multiple intermediaries on your side, they divide that $100,000 commission pool.
Why Commissions Are Disclosed
Legitimate petroleum traders disclose commission structures upfront for good reasons, and it's actually a positive sign when they do.
Transparency builds trust. When someone tells you "the net price is $460/MT and my commission is $10/MT," you know exactly what you're paying and why. There are no hidden markups buried in the price. You can compare this transparent $470/MT offer against other offers and evaluate if the gross price is competitive.
Full disclosure also prevents disputes down the line. Everyone knows who gets what before the transaction starts. The seller knows their net. The buyer knows their total. The intermediaries know their commission. This clear agreement means fewer arguments after the deal closes about who was supposed to get paid what.
Professional disclosure is simply standard practice in commodity trading. Experienced traders expect to see commission structures spelled out in offers and contracts. When commissions are disclosed, it signals you're dealing with professionals who understand how the industry works.
Red Flags in Commission Structures
Certain commission requests should trigger immediate alarm bells.
Upfront commission payment is never legitimate. If someone says "pay my $10,000 commission before the deal starts" or "send commission to unlock the transaction," that's a scam. Commissions are always paid after successful delivery and your payment to the seller. Anyone demanding payment upfront isn't a legitimate intermediary – they're trying to steal your money.
Excessive commissions suggest something's wrong with the deal structure. If you see $50/MT commission when typical is $5-15/MT, ask why. Often excessive commissions hide too many intermediary layers or indicate the person quoting doesn't actually have competitive product. Each unnecessary layer adds commission and makes pricing uncompetitive.
Hidden commissions appear when prices are significantly above market with no explanation. You're offered EN590 at $550/MT when the market is trading at $500/MT, but there's no commission disclosed. That $50 difference likely represents hidden intermediary markups. Transparency is better – at least then you know what you're paying for.
Commission demanded before delivery follows the same scam pattern as upfront payment. "Send my commission before I authorize shipment" means you're talking to a scammer. Nobody with real product demands commission before delivery. The seller doesn't get paid until you receive product, and intermediaries don't get paid until after the seller gets paid.
Multiple undisclosed intermediary layers create inflated pricing. You think you're buying direct at $520/MT, but there are actually three intermediaries between you and the actual product owner, each taking $10-15/MT. You're paying $520 when the net to the actual supplier is $470. Disclosed commissions let you see this structure; hidden ones don't.
How Commissions Affect Your Price
Let's compare three scenarios to see how commission structures impact what you actually pay.
Scenario 1: Transparent commission. The market is trading EN590 at around $500/MT. You receive an offer at $505/MT with $5/MT commission disclosed. This is fair, market-rate pricing. The gross price is competitive, the commission is reasonable, and everything's transparent. This is what you want to see.
Scenario 2: Hidden commission. The market is $500/MT. You get an offer at $530/MT with no commission mentioned at all. This is overpriced and likely hides multiple intermediary layers. The seller claims it's "direct from refinery" but that $30 premium above market suggests otherwise. You're probably overpaying for hidden markups.
Scenario 3: Excessive disclosed commission. The market is $500/MT. An offer comes in at $540/MT with $40/MT commission disclosed. At least it's transparent, but that commission is way too high. This suggests too many intermediaries in the chain, with each one taking a cut. The deal structure is inefficient and you're paying for it.
Your preference should be transparent, market-rate commissions in the $5-15/MT range. Judge offers by their total gross price competitiveness, not by whether commissions exist.
Should You Try to Negotiate Commission Out?
The short answer: generally no, and here's why.
Intermediaries who earn commissions provide real value. They source buyers or sellers you wouldn't have found yourself, handle complex procedures and documentation, facilitate communication between parties, coordinate verification and logistics, and reduce your risk by vetting the other side. That's worth $5-15/MT in most cases.
The commission is already at market rate. If you're seeing $5-15/MT, that's standard and reasonable for the services provided. It's not inflated – it's what the market has settled on as fair compensation for legitimate intermediary work.
Removing the intermediary might not actually reduce your price. Even if you somehow reach the direct supplier and cut out the broker, the supplier might not drop their net price just because you came direct. You could end up paying the same gross amount either way, except now you handle all the coordination yourself.
Relationships matter more than you might think. Intermediaries who've worked with a seller for years get better service, faster responses, and preferential treatment. Going "direct" as an unknown buyer might actually result in worse service than working through a known intermediary.
What you CAN and SHOULD negotiate is the total gross price. If the market is trading at $510/MT gross and you're offered $530/MT gross, negotiate that down regardless of how the commission is split internally. Focus on being competitive on total price, not on eliminating commissions.
Direct vs. Through Intermediaries
The petroleum trading world is full of sellers claiming "direct from refinery" while intermediaries who disclose their role get passed over. But the reality is often inverted.
A "direct from refinery" offer might claim no intermediaries and quote $470/MT. It sounds great until you dig deeper and discover there are actually 2-3 hidden intermediaries in the chain. The refinery's net price is $430/MT, but each hidden layer added $10-15/MT until it reached $470/MT. You're paying for intermediaries anyway – you just don't know who they are or what they're doing for that money.
Meanwhile, a disclosed intermediary offer states openly "we're a broker, net price is $460/MT, our commission is $10/MT, total $470/MT." This is completely transparent. You know exactly what the seller receives ($460) and what the broker earns ($10). The total price is the same $470/MT as the "direct" offer.
The bottom line: focus on competitive total price, not on whether the seller claims to be direct. Transparent pricing with disclosed commissions often beats "direct" pricing that hides intermediary layers.
Commission Structure in Contracts
Legitimate petroleum deals include formal documentation of commission agreements, typically through an NCNDA/IMFPA (Non-Circumvention/Non-Disclosure & Commission Protection Agreement).
This legal document spells out exactly who receives commission, the specific amount per metric ton or percentage, when payment will be made (typically 24-48 hours after the buyer pays the seller), how payment will be made (wire transfer details), and protection against circumvention (preventing parties from cutting out intermediaries on future deals).
The NCNDA/IMFPA protects everyone's interests. Intermediaries are guaranteed their commission as long as the deal closes. Buyers and sellers are protected from having their contact information shared with competitors. Everyone knows the rules upfront, reducing disputes and ensuring fair treatment.
How to Evaluate an Offer with Commissions
When reviewing a petroleum offer, use these criteria to evaluate whether the commission structure is legitimate:
Good signs to look for: Commission is disclosed upfront in the initial offer – you're not asking three times before getting an answer. The amount is reasonable at $5-15/MT for refined products. Payment terms clearly state commission is paid after transaction completion, not before. The structure is clear about who gets what portion. And most importantly, the total gross price you pay is competitive with current market rates.
Warning signs that indicate problems: Commission payment is required upfront or before delivery – instant red flag for scams. Excessive commission of $30+/MT suggests too many intermediaries or an inefficient deal structure. Hidden or completely undisclosed commissions where pricing is way above market with no explanation. Vague statements like "commissions to be discussed later" rather than clear terms upfront. And total gross price that's way above market regardless of how commission is structured.
Focus on the combination of fair commission structure and competitive total pricing. One without the other isn't enough – you need both transparency and market-competitive gross prices.
Bottom Line
Commissions are a normal, legitimate part of petroleum trading. They're how intermediaries who provide real value – sourcing deals, coordinating transactions, handling documentation – get paid for their services. Understanding how they work helps you evaluate offers more accurately.
The typical commission range is $5-15 per metric ton for refined petroleum products, or $1-3 per barrel for crude oil. This is what the market has settled on as fair compensation for intermediary services. Anything significantly higher should raise questions about deal structure efficiency.
Commissions are always paid after successful transaction completion – never upfront. Payment happens after product is delivered, after you pay the seller, and after all contract obligations are fulfilled. Anyone demanding commission payment before delivery is running a scam.
Transparency in commission disclosure is actually a positive sign. When someone openly states "net price is $460/MT, my commission is $10/MT, total $470/MT," you know exactly what you're paying and why. This is better than "direct" sellers who hide intermediary layers and mark up prices without explanation.
Focus on competitive gross price, not on eliminating commissions. As a buyer, you care about the total amount you pay. Whether that $470/MT includes a $10 commission or claims to have zero commission doesn't matter – what matters is that $470 is competitive with current market rates.
Watch for red flags: upfront payment requests (always scams), excessive commission amounts ($30+/MT), lack of transparency about commission structure, and total gross prices way above market rates. These indicators help you spot problematic deals before committing money.
A disclosed $10/MT commission with competitive gross pricing beats a "direct from refinery" claim with hidden markups every time. Transparency is more valuable than claims of being direct.
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