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Introduction

Welcome to our comprehensive guide on oil trading, where we delve into the intricate world of buying and selling crude oil and related products. Whether you are a seasoned trader or a newcomer to this industry, this guide will provide you with a thorough understanding of essential terms, documents, and procedures in oil trading.

Section 1: Understanding the Basics

  • Crude Oil: Crude oil is the raw material extracted from the earth, composed of hydrocarbons, which is refined into various petroleum products.
  • Petroleum Products: These are derived from crude oil and include gasoline, diesel, jet fuel, and more.

Section 2: Essential Terms

  • TSR: (Tank Storage Agreement): A TSA is a contract that allows traders to store their oil in a tank for a specified period.
  • FCO: (Full Corporate Offer): An FCO is a formal document issued by a seller to confirm the terms of a potential oil deal.
  • ICPO: (Irrevocable Corporate Purchase Order): An ICPO is a document issued by a buyer, expressing the intent to purchase a specific quantity of oil under certain terms.
  • CI: (Corporate Invoice): A CI is a seller's invoice sent to the buyer detailing the oil quantity, price, and other relevant terms.

Section 3: Procedures

  • Negotiation: Buyers and sellers negotiate terms, including price, quantity, and delivery conditions.
  • ICPO Submission: The buyer submits an ICPO to the seller, confirming their commitment to purchase.
  • FCO Issuance: The seller responds with an FCO, laying out the deal's specifics.
  • CI and SPA (Sales and Purchase Agreement): Once both parties agree on the FCO, the seller issues a CI, and both parties sign an SPA to finalize the transaction.
  • Payment: Payment terms are executed as per the SPA, often involving financial instruments like SBLC (Standby Letter of Credit) or DLC (Documentary Letter of Credit).
  • Delivery and Inspection: The seller arranges for the oil's delivery to the agreed-upon location, and an independent inspection agency verifies the product's quality and quantity.
  • Payment Release: Upon successful delivery and inspection, payment is released to the seller.
  • Title Transfer: Ownership of the oil is transferred to the buyer, and the TSR is issued.

Risk Management

  • Market Risks: Oil prices are influenced by market fluctuations, geopolitical events, and supply-demand dynamics.
  • Credit Risks: Ensuring that buyers and sellers are creditworthy is crucial to minimize the risk of non-payment.

Conclusion

Oil trading is a complex and dynamic sector with its unique terminology and procedures.

This guide serves as a foundation for your understanding of oil trading, but it's essential to work with experienced professionals and legal experts to navigate this intricate industry successfully.

Issam Subaih

03 comments for this post

  • comment images
    Smith Lebrn September 12, 2023

    Very informative. Just 3-4 minutes of reading and covering the whole model of oil and gas business. well explained in short way of breifing. Thank you

  • comment images
    Hasan Ahmad September 22, 2023

    Yes, that is correct but few subjects still need to be covered. Like Bunkering?

  • comment images
    M. Aslam October 08, 2023

    Yes, just couple of minutes of reading and you understood major points. Thanks to admin.

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