The protracted slump in oil prices has made it challenging for the industry to identify cases of fraud and theft. However, the current lack of visibility exposes potential vulnerabilities in the pipeline, leading to billions in losses every year.
Blockchain, a digital ledger that can also be used within supply chains, is poised to transform this network with 1) enhanced transparency throughout the system, 2) greater control over how trades are executed and payments managed, and 3) a higher degree of trust between parties who are interacting. For example, in the oil industry, blockchain can provide a radical change in the following areas: If you are planning to invest in Oil industry, you may consider knowing about the role of blockchain in oil trading.
Reduction in systemic risk:
Reduction in systemic risk, both financial and physical, that could disrupt the oil supply if intermediaries do not adequately control activities. For example, people can record data so that the oversight of parties involved in oil trading is transparent.
It assures that all parties involved only sell or transfer the same cargo once at two different ports. In addition, a single smart contract can be created by people for each transaction to track and record participation by various parties and state changes as appropriate. Once a transaction is complete and recorded, it becomes part of the permanent history that helps prevent future disputes.
With blockchain, this process can be streamlined by people, and companies can verify the choice of counterparties. Furthermore, the identities of all parties involved in the transactions are verified during the process. Such steps will significantly reduce loss due to fraud and theft in the industry.
Disintermediation:
In addition to reducing crime, blockchains smart contracts enable such trading activities as the private issuance of commodity-backed loans financed by secure storage receipts or bills of lading. Oil companies can also use blockchain technology to manage the trade of oil, goods, and equipment. Furthermore, blockchains include a decentralized database, which allows all the participants to share and evaluate data. As a result, it brings complete transparency to the supply chain and helps companies track their goods throughout the pipeline.
Disintermediation is an essential process for blockchain to reduce systemic risk because it allows buyers and sellers to avoid paying for multiple layers of brokers or intermediaries. Brokers are financial gatekeepers who take advantage of oil producers by charging excessive fees to connect them with potential customers. Blockchain can also remove barriers that prevent suppliers from reaching consumers directly-a move which could lower costs for both sides.
Reduce costs:
Reduction in costs due to process automation efficiencies, which will automate many of the manual back-office processes currently performed by humans via the blockchain network. The oil industry is currently investing in IoT and self-driving trucks. The technology can also reduce costs by streamlining business processes and eliminating intermediaries who add no value to a transaction.
The benefits are limited to the production companies and extend to all parties involved in the supply chain. For example, industrial machine distributors could benefit from a change in how they ship large equipment overseas by using blockchain smart contracts instead of letters of credit opened by banks.
Blockchain enables control over all information relevant to the manufacturing process for each order, including shipping progress and location, which different parties along the supply chain verify. The distributed ledger technology will also reduce shipping time and costs because parties have a greater sense of trust and certainty, which can be tracked on the blockchain.
Disruption in global logistics:
Conditions for oil transportation are gradually changing with the development of blockchain. However, the current system is based on paper documents, which is expensive and slow due to the involvement of several parties in the process.
A blockchain approach would enable all parties involved in transportation to see the same version of events or facts at any given time throughout the shipping process, making it easier to resolve any disputes that occur when they arise. They envision a world where all parties involved in the supply chain can coordinate their efforts, and they have already started implementing their technology in practice.
Disruption of the refining oil industry:
The current process for distributing crude oil requires some intermediaries, but blockchain can change this. When applied to upstream activities, blockchains can automate many manual tasks that currently require humans to perform at high levels, such as collecting data from sensors or meters to verify records kept by the producer.
One of the industry’s most critical tasks is ensuring that no oil goes to waste, either at refining or during transportation. Blockchain can improve this process by enabling a real-time track and trace of each barrel of oil. People can create smart contracts executed on the blockchain as needed.
Blockchain can also speed up the distribution of refined products and reduce overhead costs. As each transaction is recorded, it becomes part of a permanent ledger distributed among all participants involved in the supply chain network. As a result, each party can access and verify only the data they need to know at any given time, thus reducing overhead and speeding up the entire supply chain process.