The oil industry’s supply chains can be fractal and span multiple enterprises. There is no central command post for oil market regulation, but with the proper regulatory mechanisms, Blockchain and smart contracts can come close to replicating that functionality. If anyone wants to trade oil, they can visit this Official Web Site in trading oil.
This post will detail how a regulator can leverage blockchain-based smart contracts and tokenized securities to create the illusion of a single nexus of control over oil transactions. The Nature of Oil Market Regulation: Streaming on Demand
Because oil is a liquid commodity, it cannot be stored or transported safely and efficiently in bulk. Instead, the oil must be purchased in small volumes from refineries and delivered to distribution terminals (DTVs) by specialized tanker trucks.
It is why the industry operates one tank truck for every ten gallons of stable fuel oil (SFO). However, following the surge in shale oil production in North Dakota and Texas, making the U.S. less dependent on the Middle East, more flexible fuel oil is being produced in the U.S. itself (i.e., paraffinic distillate), increasing the supply exponentially over that ratio.
Blockchain Solutions To Oil Market Regulation: Gasoline, Fuel Oil, & Diesel
The Federal Motor Carrier Safety Administration has issued guidance on utilizing blockchain technology in the trucking industry. Updating this guidance is an ongoing task for the FMCSA. The agency is also planning to issue regulations for self-driving trucks and freight cars to create a digital economy with Blockchain at its core. Based on these plans, FMCSA’s plan for regulating the oil industry could follow a similar roadmap to that of trucking regulation with similar implementation timelines.
Federally Regulated Markets
To regulate the oil industry, we must have federally regulated markets. The FMCSA’s diversity of regulations is often the source of much confusion when learning about proposed rules. The most commonly regulated commodity is hazardous materials (HazMat), a subset of which is petroleum and petroleum products (14 CFR parts 72 and 49, respectively). Other federal agencies have delved into this space, such as the Federal Communications Commission (FCC), which has issued an action on alternative dispatch systems, including Blockchain.
The implementation plan for regulating federally regulated markets would be similar to that of the trucking industry. The FMCSA will issue guidance, rulemaking, and enforcement actions to ensure that newly emerging technologies like Blockchain are incorporated safely into the market.
Blockchain In Regulating Oil Products Counterfeiting
Federally regulated markets for petroleum and petroleum products, including crude oil and refined products such as gasoline, diesel, jet fuel, heating oil, and kerosene, are defined by a self-certification system.
Self-certified trade provides greater flexibility in the marketplace, but it also means that shippers have greater responsibility for ensuring that their transportation activities comply with applicable laws. In the worst-case scenario, unauthorized persons could tamper with diesel or other fuels during transport to the extent that would not be possible with digitally tracked transactions.
The government has embraced blockchain technology to track transportation compliance of bulk liquids (BTL). In 2016, the FMCSA and the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration began a pilot program to track BTLs while moving crude oil from well-site locations to the nearest processing facility.
The United States Department of Energy (DOE) also brings blockchain technology to BTL transportation safety. DOE launched a pilot project with five companies, including BP, Bollore, and Engine. This project aims to track various stages in the life cycle of BTLs, starting at the production site and ending at the delivery location. The approach that DOE is taking in its project could be applied by regulators overseeing federally regulated oil markets.
Digitization Of Crude Oil Transactions Will Increase Liquidity
Without any regulation, the oil market can be pretty volatile. During periods of high volatility, some refiners and distributors will sell, and others will buy when money is tight or when the market is oversupplied with crude oil. As a result, it can artificially drive prices up to unsustainable levels without contributing to long-term price stability.
Tokenized stocks and bonds could reduce volatility in the industry by providing liquidity that would not exist otherwise. For example, in a fluctuating market, there may need to be more water at a pipeline intake to keep up with demand. In addition, the widespread use of blockchain-based securities trading could help supply management during times of extreme volatility by allowing refiners and distributors to hedge against changes in demand.
To support the transition from cash-based to tokenized securities, the program will offer funding to cover the transition costs. It will introduce new market participants through a program targeted at small businesses that require capital. In addition, there are many ways in which Blockchain can be applied to detect fraudulent activities. According to officials at the FMCSA, “Blockchain’s decentralized nature permits all parties as the blockchain ecosystem continues to mature. This process is expected to be more straightforward, with less manual effort and human error.
