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Oil companies, producers, shippers and traders need to work together and trust each other for the blockchain industry to work. Unfortunately, One area where blockchain technology has a significant impact is in the customs clearance process for oil.
Oil companies are now leveraging blockchain-based smart contracts to conduct transactions such as loading, delivery and payments to reduce their risk from uncertainty in the relationship between commodity producers, and to have massive profit in oil trading between traders and buyers.
The economic uncertainties of shale can be incredibly challenging because the profitability of shale production hinges on market price fluctuations over several years from investment decisions. As a result, global oil majors have been investing heavily in research into new technologies, including blockchain encryption, to mitigate this risk.
First Ever Implementation of Blockchain in the oil trade industry
The first commercial implementation of blockchain technology in the oil and gas industry turned to the Port of Rotterdam to help a significant energy player, Vopak, manage its complex logistics. The Port has been using blockchain for customs clearance and supply chain finance to support this customer's business.
The blockchain solution is being used to automate many processes around customs clearance. It brings better visibility into supply chain processes, so that ship operators can make better decisions in real-time and thereby reduce their costs.
The project exemplifies how Vopak's business model has been modernized using new digital technologies such as blockchain. It is an excellent example of blockchain technology's potential to create value and ensure more trust between trading partners and enable new business models.
The Port of Rotterdam is known for its innovative approach to new technologies, including in the maritime industry. To support this use case, the Port has developed an API enabling Vopak to retrieve data from the blockchain platform and make it available for internal systems. This API can also be used by other ports worldwide that wish to integrate blockchain into their processes.
Blockchain: The most awaited revolution in oil trading
Blockchain is a shared, trusted and transparent digital ledger recording information in a way that makes it secure and resistant to tampering or revision. The technology can track the ownership of physical assets but can also handle unique digital assets such as fiat currency, loyalty points or virtual gold.
As a relatively new technology, blockchain is still an enabler for innovation in the oil trade industry. Traditionally, it has been challenging for global traders to work with producers to improve the transparency of commodity trading transactions.
Given that international trade raises considerable legal uncertainty across borders – especially in uncertain markets blockchain offers excellent potential to create more trust between trading partners.
Oil companies are already beginning to use blockchain to conduct transactions such as loading, delivery and payments that allow them to reduce their risks from uncertainty in the relationship between commodity producers and traders. According to Oil & Gas Innovation magazine, Eric van der Kleij, CEO of Shell in Europe, claimed that blockchain could be the most anticipated innovation of the decade.
How are oil companies leveraging blockchain technology?
Some oil companies are leveraging blockchain technology to improve the supply chain process. For example, BP has tested a blockchain platform for trading partner payments. The platform lets customers quickly verify whether BP's payment is valid.
In addition, oil companies can use blockchain to support data interoperability between multiple internal and external systems helping them to improve their business processes and become more efficient in managing risk and information. By using smart contracts for transactions such as loading, delivery and payments, oil companies can increase transparency by simultaneously providing all parties access to the same information and documentation.
How will blockchain revolutionize oil trading?
Blockchain technology could revolutionize how oil traders conduct transactions because it can create more trust between trading partners and improve supply chain processes. With the recent development of blockchain in the oil trading industry, the future is undoubtedly bright. Following a significant increase in the price of oil and gas, producers have increased their investment in developing new technologies. As a result, the commercial implementations of blockchain for commodities are likely to show great promise, with intelligent contracts leading the way.
While some oil companies are already leveraging blockchain technology, others are still waiting to see how it affects existing systems before they commit to blockchain investments. Ultimately, as more companies adopt this technology, it may lead to more collaboration between trading partners because they can work together on solutions that can help reduce their costs and risks across global supply chains.
As blockchain becomes an integrated part of business operations for major oil brands, transparency and trust across companies could be achieved along with maintaining cheaper transactions.
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.