The direct sales approach is a method of marketing and retailing goods to the consumer and does not rely on direct mail, product advertising or fixed retail outlets. In the context of crude oil, it is usually sold directly to potential buyers through an organisation or corporation, which controls and regulates the selling. The direct selling approach has greatly changed in the recent due to the adoption of the internet and shifts in consumer behaviour. Therefore, it would be important to the Geneva-based oil trading company to adopt direct selling strategy to Crude oil is the leading product in terms of the value of units traded on a daily basis globally.
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Selling of Crude oil in Nigeria
The selling of most of the world crude oil reserves is controlled by organisations that facilitate the sale of the crude oil such as the Nigeria National Petroleum Corporation (NNPC). These organisations have been tasked with the role of setting up guidelines concerning the selling process. In addition, other oil producing countries have created such corporations to manage various issues with regard to oil production and selling.
The government mainly controls the operations of the NNPC. In fact the oil sector in the country has been relatively stable sue to the strict regulations that re effected by the NNPC on behalf of the government. This corporation allocates the crude oil to specific buyers who have met certain conditions set by the corporation. Those who may apply for allocation are required to be bona fide end users who own a refinery and retail outlets abroad, details of the facilities, markets and volumes of crude oil processed over the last three years must accompany the application and must be an established and globally recognised large-volume trader.
Applicants should meet certain requirements in order to be allowed to trade in oil. This aims at prohibiting firms that are not well prepared to engage in oil trading, which would result in the collapse of the global petroleum industry. One of the most important requirements of applicants is a minimum investment that is set by the oil production and regulatory body. In addition, firms should have about 100 million US dollars with regard to annual turnover.
Direct selling of crude oil in Nigeria can be described in four ways. They include freight on board (FOB), tanker-to-tanker (TTT), tanker take over (TTO) and cost insurance and freight (CIF). Among the three methods of selling oil in the country, various firms commonly adopt the TTO and TTT. In TTO, a firm uses a tanker of a oil producing company to transport the purchased oil to its premises, but returns the equipment upon delivery. On the other hand, in TTT, a purchasing firm uses its own tankers for transporting the bought oil to its destination. Thus, it would be expected that the firms adopting the TTT approach of buying oil usually incur relatively cheap cost in purchasing oil than those that use the TTO method. Various payment methods are adopted to facilitate efficiency in the oil selling business. Some of the methods are swift methods, or online payment approaches.
Control of Crude oil selling in Nigeria
Nigeria is the largest oil producer in Africa, and the fifth largest in the Organisation of Petroleum Exporting Countries (OPEC). Oil for the past three decades has provided 90 percent of the foreign exchange earnings of Nigeria, financing 80 percent of total government revenue. According to the Nigerian constitution, crude oil is the property of the federal government, which negotiates the terms of oil production with the private firm. Most exploration and production activities involving crude oil are carried out by multinationals, but they operate under the control of the Nigerian National Petroleum Corporation (NNPC). The oil industry contributes to 55-60 percent of production contracts receive same ratio of total revenues.
Most of European and American countries have signed agreements with the Nigerian government in extraction and selling of the Nigeria’s crude oil. The new terms for oil exploration are outlined in the Petroleum Act and allow foreign companies to bid for contracts in joint operation with the NNPC.
The new contracts between the NNPC and foreign firms were put in place for the purpose of improving Nigeria’s control of the oil industry, thus ensuring that the multinationals sold up to 60 % of their equities to the state. However, this goal has been disrupted by domestic economic crisis, international pressures for privatisation, and political instability.
The control over the operating costs of production and selling of crude oil has been repeatedly expressed in the maximisation of high profits accrued by foreign oil companies, even during times of economic downfall.
Factors to be considered before embarking on direct sales of Crude oil
There are four major factors that need to be considered when trading in crude oil. The first is the funds needed to buy the oil. It is estimated that one will need a minimum of hundred US dollars to get up to two million barrels of crude oil. The second factor to be considered is availability of potential buyers. One should research on the available potential buyers before venturing into the selling business.
The third factor is the tanker where the seller will store the crude oil as he or she awaits transportation to the potential buyers. The fourth factor to be considered is the crude oil seller or supplier. Before engaging in the business of trading in crude oil you will need a seller or supplier to distribute the oil to respective buyers. This is usually costly for many countries but the burden is lessened with the acquiring of a tanker for storage of oil reserves.
Global Trading Patterns that affect direct sales approach
These reflect the result of buyers and sellers responding to market forces to get each type of crude oil from where it is produced to where it is most important and valued.
The direct selling of oil to be adopted by the company based in Geneva would make important considerations with regard to setting the prices of oil products. The prices are largely influenced by the prices of crude oil, which are vey volatile. Therefore, the approach selling oil would be based on trends of global market trends, which could be impacted by several factors, such as politics, natural calamities, and famines, among others.
Some of the major countries that the organisation is expected to have the best sales would be China and the US because of their relatively high oil consumption trends. Thus, the direct selling approach would focus on identifying the best market niches in the countries that have significant oil usage patterns. Although various issues could negatively impact the sales, it would be expected that the approach would be implemented in such a way that most of the negative factors would be eliminated. Today, determined market signals that inform the buyers and sellers about the current and future supply and demand, which ensures that the global price for crude oil reflects its market value.
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Challenges that affect direct sales approach of crude oil in Nigeria.
Though direct selling approach has been on use in Nigeria, a number of challenges have been faced. The first challenge is that the NNPC cannot work without the support of the foreign multinationals and as a result these multinationals reap maximum profits at the expense of the country. Secondly, there are constant theft cases of crude oil when it is being transported to the respective buyers. As a result of this, the country makes major losses that affect the economy negatively. The changes in the global market price may affect the selling in that the crude oil may have already been sold hence affecting the oil company negative or positively. Direct selling approach is also affected by constant breakdown of trucks transporting the leading to extra losses.
In conclusion, the direct selling strategy would be adopted by the organisation so that the sales revenues would be improved in the coming years. The country of target is Nigeria, which has significant crude oil that is used to make diverse products. Thus, the management of the firm should use the approach to gain competitive advantage in the future.