Buying and Selling considerations

While this section is written from the perspective of buying and selling Diesel, it could apply to any other oil products.

There is no party who can control the market place and therefore all parties have over time established procedures which are to be respected in order for trade to take place. An attempt to bypass these procedures will only result in more effort and/or lost opprotunities.

The selling party wishes to sell their product with best possible price the market can offer and the buying party wishes to purchase the same product with the lowest price and neither one wishes to waste any time in the process. So how to proceed?

It all comes down to statutory documents (please follow this link to download the whole package or required documents) such as Letter of Intent (LOI) and Irrevocable Corporate Purchase Order (ICPO). These documents give little or no choice/margin within their established procedures with serious suppliers. In many ways the documents simply provide an established way to start a dialogue between the parties in a secure manner. These procedures are very simple and safe and it is surprising why the document process should be so difficult to follow to initiate negotiations and - subsequently - secure a deal.

To begin the process, a supplier/seller with available or queued cargoes first has to be identified from the range of major sellers with their own production or refining capacities. This can be done only on the basis of a specific Letter of Interest or Letter of Intent (LOI)from a prospective buyer. It cannot be addressed to the seller, which is yet to be identified. So it may be addressed to "Whom It May Concern" or for example to "Advanced Business Management Ltd". The form of such letter (LOI) is found in this link and has to be complied with and filled in so that the data contained therein is verifiable and follows the format given (you can use your own letterhead).

It is also advisable (and in some cases mandatory) that the proposed fresh buyer provides a brief company profile and essential data of the signatory of the Letter of Intent (LOI) and the Irrevocable Corporate Purchase Order (ICPO) to follow (usually a copy of a valid passport). If the preceeding brings a positive preliminary result from the selling party, the full name and other requisites of the seller company will then be supplied to the buyer to issue Irrevocable Corporate Purchase Order (ICPO) and provide its bankers letter of comfort (issued by the bank), while the authority to probe is contained both in the letter of interest and Irrevocable Corporate Purchase Order (ICPO) issued by the buyer. A separate agreement may be required between the buyer and the contact (intermediary). The Irrevocable Corporate Purchase Order (ICPO), is an important document the contents of which shall be used for the construction of the contract. Any spontaneous change of the set form is not allowed and sends the document into the waste bin.

Now back to the beginning. The Letter of Intent (LOI) is intended only to present the potential buyer, its requirements and capability to pay. The seller and those who (mandates and intermediary) work to bring the seller to the buyer and vice versa stick to the set rules and common sense where they touch on the terms and conditions of the deal in the making. This is the seller market, not the buyer market. And the sellers (at least those who trade very seriously) say that ie the D2 (Diesel2) price is only dated Platt's average (see this link for Wikipedia reference) with a negotiable discount. This means that the price is usually the mean of 3 days Platt's reference (please follow this link to Platt index) under D2 (before, on and after loading) and it is so set for every single shipment. Seeking other terms from established sellers may be a waste of time, money and effort. So is quoting unrealistic buyer prices which are also fixed throughout the term of the contract.

For deals of this nature fixing the price is not an option at all. Quoting a preferred price in the situation when it is much lower than the current reference and may double or treble next month or quarter does not make serious business either. Yet many ICPOs and LOIs provided by prospective buyers attempt to establish trade with fixed pricing. This is unfortunately not the best way to proceed unless the seller will suggest spot-deals (one-time immediate purchase with no extensions) but these are not the norm of this business. Thus delays, unnecessary information exchanges, suspicion and so on. Often this is because the seller of a so called attractive spot-cargo also wants to keep a capable buyer close while he turns himself into another middleman looking for a term contract with a major seller which is capable to deliver. At that many are simply trying to penetrate the market and some are being mislead as to its tight opportunities.

If you return to the link where you came from, you find a section entitled "Pricing Issues" where you can explore the buyer/seller/intermediary pricing issues and commission structures further.