As noted in Chapter 2, the Singapore petroleum sector encompasses a panoply of downstream industries and services besides refining. These include the trading of crude petroleum and refined products on the spot market, the loading of bunker fuels at port, independent storage facilities for crudes and petroleum products, and the production and trade of ethylene-based petrochemicals. These downstream activities are discussed in this chapter.

The Singapore Spot Market and Trading Enclave

The petroleum trade generally involves two types of transactions, term and spot transactions. A term or “forward” transaction implicates the buyer and seller in a long-term contract specifying the basic attributes of (“posted”) price, time and place of delivery, and quality and quantity of cargo. These contracts generally covered a period of three years or more, although since the late 1970s there has been greater flexibility in maturities and pricing formulas. Spot transactions refer to agreements for a change in ownership of cargoes on a prompt basis (that is, in the very near or immediate future). Often the cargo is ready for delivery in storage tanks or in tanker-at-sea.

Although the world petroleum industry comprised small producers, refiners, and traders in its origins, it began to display its characteristic oligopolistic industrial organization by the last decades of the nineteenth century (Penrose 1968). The domination exerted by the vertically integrated majors over all aspects of the industry, “from source rock to retail pump” (that is, from exploration and development to production, processing, transport, and sales), led to a tight control over the flow of oil, intra-firm balancing of supply and demand, and the predominance of long-term fixed price contracts. In this environment characterized by a relative stability of prices, there was no motivation for the development of an open spot market for either crude petroleum or its refined products. Despite the formation of OPEC in 1960, it was only with the up-heavals associated with the price shocks and the nationalization of the major concessions during the 1970s that the international oil market was structurally transformed from the tight web of large oligopolies into its present relatively diverse and decentralized market with a multiplicity of buyers, sellers, and brokers.