Commodities trading house Trafigura and French bank Natixis are working with IBM to test the use of blockchain technology for settling US crude oil transactions.
The partners say that by using a distributed ledger platform, built on the Linux Foundation open source Hyperledger Fabric, major steps in a crude oil transaction to be digitized, boosting transparency, security and efficiency.
By having the buyer, seller and their respective banks on the same ledger, all parties can simultaneously view and share data on the status of a transaction, from the time a new trade is confirmed and validated, to when the crude oil is inspected, to its final delivery and cancellation of the letter of credit.
This means reduced cash cycle times, improved efficiency via lower overhead costs and fewer cost intermediaries, increased transaction visibility to help reduce the threat of tampering, fraud and cyber-crime, and the creation of transparent transactions by using shared processes and recordkeeping.
The platform will soon be expanded to allow all parties in the transaction to enter data directly onto the blockchain. For example, the shipping company, pipeline operator, inspector or warehouse can provide real-time status updates via the blockchain on the crude oil transaction, helping lower the risk of fraud.
Arnaud Stevens, New York head, global energy and commodities, Natixis, says: "The current process is paper and labor intensive, we have multiple friction points with high processing costs and limited automation. Distributed ledger technology brings some much-needed innovation into our industry."
While the distributed ledger has so far only been used by the three partners for simulations, it is designed to be adopted at scale across the entire industry. By creating a shared permissioned ledger for use across all trading partners, including multiple buyers, sellers, banks and trading partners, Natixis says even further efficiencies can be anticipated.
James Wallis, VP, blockchain markets and engagements, IBM, says: "The approach we are taking, using a permissioned blockchain network built on the Hyperledger Fabric, has the potential to transform the crude oil industry by creating consistency in trade finance and by digitizing transactions and information sharing.
"Creating this ecosystem for the commodities market working with two world leaders in this industry will help create an entirely new approach to managing the global commodities trade."