Deuss’ demise: an oil trader’s struggle to keep up with the market, 1970s-1990s

In contrast to many other commodities, crude oil trading is a relatively new phenomenon. The end of the concession system in the 1970s caused the oil value chain to disintegrate and a spot market for crude oil to emerge. Oil traders, in particularly the infamous US oil trader Marc Rich, have been credited with creating this spot market and its subsequent development into the global locus of oil price formation. As such traders can be viewed as the little known but vital agents of globalization. Although traders certainly did contribute in the first formative years of the spot market in the late 1970s and early 1980s, their business models were fundamentally challenged by the subsequent evolution of the market in the late 1980s and early 1990s. Whereas globalization is about market integration, traders were typically geared toward profiting from large market distortions and opaque prices. As the spot market matured and gained global acceptance for price formation, the original oil traders were either forced out of the market or fundamentally transformed their businesses. One particular example is Dutch oil trader John Deuss. During the 1980s among the top 3 global oil traders, Deuss’ company languished in the 1990s after a failed corner of the Brent market and competition from firms that were both more sophisticated and better financed. Using Deuss as an example, this paper raises two questions: On the one hand, how did independent oil trading firms contribute to the formation of the modern oil market since the 1970s? On the other hand, how did the subsequent evolution of the market affect the business model of independent oil trading firms from the mid-1980s onwards? The core aim of the paper is to question the relationship between the economics of the trading firm and the economics of the market. The paper combines quantitative data on the development of the spot market using a deals database compiled by Argus Media since 1975 with secondary material ranging from scholarly, trade and news publications.