How To Successfully Close an Oil Deal
How To Successfully Close an Oil Deal
Oil deals are some of the most profitable and the most difficult to close. Crude oil and petroleum products are high-value commodities with strict logistics, financing, and compliance requirements. Real deals close through a structured process, backed by verifiable supply, strong counterparties, and credit instruments accepted by global banks. This guide walks through the end-to-end process of how to close an oil deal without falling into the traps that kill 90% of attempts.
1. Understand What a Real Oil Deal Looks Like
A genuine oil transaction is based on real barrels. This means crude oil coming from producing countries or refined petroleum products sourced from licensed refineries and storage terminals. The seller has title to the product, proven through a chain of custody and export documentation. The buyer has the financial capacity to pay, usually proven through a bank instrument or confirmed credit line.
Fake “allocation holders,” unverifiable “TTT (tank-to-tank)” deals, or “liftings” without contracts waste everyone’s time. If there is no export license, storage receipt, or refinery allocation letter backed by a bank, there is no deal to close.
2. The Key Players
- Seller: Producing company, NOC (national oil company), refinery, or licensed trading house with title to the product.
- Buyer: End-user, utility, or licensed trading company with balance sheet strength and bank support.
- Financial Intermediaries: Capital arrangers like Financely, who structure SBLCs, LCs, or debt lines to fund imports and exports.
- Logistics Providers: Tank farms, inspection companies (SGS, Intertek), and shipping operators.
- Banks: Issuers and confirming banks handling credit instruments and payments.
3. Step-by-Step Process to Close an Oil Deal
- Initial Matching: Buyer and seller confirm product specs, quantity, Incoterms (FOB, CIF, DAP), and delivery window.
- Due Diligence: Verification of seller’s license, refinery allocation, export rights, and buyer’s proof of funds.
- Term Sheet & SPA Draft: A sales and purchase agreement (SPA) is drafted covering volumes, quality standards, shipping terms, inspection, and pricing formula (often Platts-linked).
- Financial Structure: Buyer provides a standby letter of credit, documentary letter of credit, or escrow-backed payment structure.
- Execution: Seller nominates vessel or releases product from storage. Inspection companies verify quality and quantity. Buyer’s bank releases payment once documents are compliant.
- Settlement: Funds flow through the banking channel. Title to goods is transferred upon payment or as per SPA.
4. The Contracts That Matter
Oil trades are closed on the basis of enforceable contracts. The most common is the SPA (Sales and Purchase Agreement). It specifies product specifications, delivery terms (FOB – Free on Board, CIF – Cost Insurance Freight), and payment method. Without a signed SPA, there is no enforceable oil deal. Spot transactions may use short-form contracts, but for significant volumes the SPA is essential.
5. Financing the Deal
Oil deals require large sums, and very few buyers pay cash upfront. Instead, they rely on trade finance structures:
- Standby Letters of Credit (SBLC): A bank guarantee of payment in case the buyer defaults.
- Documentary LCs: Payment is made against compliant shipping documents.
- Prepayment Finance: Debt raised against future sales to fund shipment.
- Structured Trade Facilities: Receivables financing, repo structures, and forward-flow contracts.
6. Logistics and Inspection
Logistics are often where oil deals collapse. Securing tank storage, vessel availability, and inspection windows are critical. Independent inspectors such as SGS, Cotecna, or Intertek verify that the cargo matches the SPA. Without inspection certificates, no bank will release funds under a letter of credit.
7. Timelines
Closing an oil deal takes time, especially the first time with a new counterparty. Expect:
- Initial matching and due diligence: 2–4 weeks
- SPA negotiation: 1–3 weeks
- Bank instruments issuance: 2–6 weeks
- Shipping and inspection: 1–3 weeks depending on route
8. Red Flags That Kill Deals
- Unverified sellers with no refinery or NOC connection.
- Buyers without bank-issued proof of funds.
- Intermediaries demanding “performance bonds” or upfront deposits without contracts.
- Unclear Incoterms and logistics responsibilities.
- Failure to align inspection, banking, and shipping timelines.
9. Financely’s Role in Oil Transactions
Financely does not sell oil. We are capital arrangers. Our role is to structure and raise the financing that allows legitimate buyers and sellers to close. We underwrite trade finance lines, arrange standby letters of credit, and introduce credible investors willing to fund oil flows. Without structured capital, most oil deals collapse even when supply and demand are real.
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Share your crude or petroleum product requirements, contract size, and delivery terms. We will revert with scope, fees, and timelines to structure the financing and help close your deal.
Contact UsDisclaimer: This article is for educational purposes only. Financely does not sell crude oil or petroleum products. All financing is subject to underwriting, KYC/AML, and investor approval. Oil trading involves significant market, credit, and logistics risks. Work only with licensed counterparties and confirm every bank instrument through SWIFT.
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