Trade Agreement

The Trader agrees to buy oil from an oil major loading in 41-45 days at a negative differential and to sell the oil cargo to a refinery for delivery in 101-105 days at a positive differential.

Price Agreement

All transaction-based lending is fully collateralized. Day-to-day trading is funded through one-to-one agreements with individual banks.

The Oil major issues an invoice to the trader and names a period of time when the trader must lift the oil. For most transactions, the applicant’s bank issues a Letter of Credit (LC).

Loading

The physical commodity being financed by the LC is specified as security and the LC provides credit to the trader.  The creditworthiness of the buyer is replaced by the creditworthiness of the Bank and the oil cargo itself is used as the collateral.

• The trader nominates a tanker to lift its stem in the loading sequence and the terminal assigns a berth.
  

• After the date of shipment, depending on the terms of the trade e.g FOB, CIF, the barrels are now wet.
  

• The seller of the commodity draws down the LC, which then converts into a secured loan from the LC-issuing bank.

Frequently, crude deals price cargoes around the loading date, crude is fixed as the arithmetic mean during the loading period.

Transportation

The loan is marked to market at least weekly until maturity so that the amount being financed always corresponds to the value of the underlying commodity.

This financing facility is repaid from the securitisation programme when the transaction reaches its completion date.

Delivery

The Trader issues invoice to the refinery and this invoice is securitized.

To see more from the Trade, Shipping and Finance Wizard visit: 

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