Trading firm Mercuria brings blockchain to oil trading through partnership with ING and Societe Generale

Crazy Commentary : Since the traditional oil trading process is very cumbersome and costly, in order to enable the energy industry to achieve digitalization in oil production, refining, and transportation, blockchain technology can be introduced into oil trading. Then the entire process of oil trading will become safer, and the costs associated with physical transactions and their financing will be reduced.

Translation: Nicole

DAVOS, Switzerland (Reuters) - Trading firm Mercuria is working with banks ING and Societe Generale to develop the first major oil trade based on blockchain technology as the traditional oil industry tests digital technology.

Mercuria is sending oil cargoes containing African crude to China and selling them to one of its shareholders - ChemChina - with ING and Societe Generale helping to execute the deal, Mercuria Chief Executive and co-founder Marco Dunand told Reuters.

He announced the deal at the World Economic Forum in Davos, Switzerland, where digitalization was one of the main topics debated by the world’s top oil companies and trading houses this year.

By creating a permanent and public "ledger" of all transactions, blockchain can replace complex clearing and settlement systems with a simple ledger. The technology is also behind the bitcoin electronic currency.

Marco Dunand

Dunand said:

“The energy industry must continue to digitize oil production, refining, transportation, etc., so traders must also participate.”

Dunand said the idea behind the deal is simple.

Today, when goods are shipped from buyer to trader to seller, the captain must stamp the bill of lading – the document issued by the carrier confirming receipt of the goods for shipment.

The documents must then be sent to customs, surveyors and other agents and officials, while the carrier must issue a damages bond in case the documents are not processed in time.

Dunand said:

“It’s an archaic process, so introducing blockchain technology can skip the whole process from buyer to shipper to seller, and there’s no need to go through a lot of bills of lading.”

If the industry manages to standardize blockchain contracts, the entire process of trading oil will become more secure, and the costs associated with physical transactions and their financing will decrease, Dunand said.

“Future challenges for blockchain will be on the legal side, as blockchain technology is still not recognized by the government, so banks are working with various jurisdictions to ensure that blockchain can work around the world.”