Term contracts sit at the centre of real commodity and petroleum trading. Producers, refiners, trading houses, and industrial buyers agree on volume ranges, pricing formulas, and delivery terms over months or years, then finance and hedge those flows through established banking lines and risk systems. In parallel, a different narrative circulates online: broker chains, unreal volumes, and “guaranteed” double digit discounts to benchmarks. This guide sets out how term contracts are actually structured and financed, and why the discount story promoted to retail “intermediaries” bears no resemblance to professional practice.
A term contract is a supply agreement under which buyer and seller commit to transact defined volumes over a fixed period, using a known pricing formula and delivery framework. Instead of negotiating cargo by cargo, the parties use one contract to govern multiple liftings or shipments. This allows production planning, refinery optimisation, logistics scheduling, and hedging to be managed against a predictable flow of barrels or tonnes.
Financing of term contracts combines corporate credit capacity with specific trade finance tools. Banks and funds lend against the strength of the trader or industrial buyer, the quality of the collateral, and the clarity of the underlying flows. The structures below are common across petroleum, metals, agri, and other commodity segments.
| Structure | Role In Financing Term Flows |
|---|---|
| Revolving Credit Facilities (RCFs) | Multi-bank RCFs provide general liquidity to trading houses and integrated energy firms. Drawings fund purchases under term contracts; repayments occur as cargoes are sold and receivables collected. Banks rely on overall balance sheet strength, diversified portfolios, and covenants rather than a single transaction. |
| Borrowing Base And Inventory Finance | Banks lend against pools of eligible inventory and receivables, applying advance rates and concentration limits. Each lifting under a term contract increases inventory and receivable exposure inside that pool. Eligibility criteria cover locations, grades, counterparties, and hedging status, and are monitored continuously. |
| Prepayment And Pre-Export Finance | Buyers or their lenders prepay for future deliveries under a term contract. The prepayment is amortised through cargo deliveries and sales proceeds. This is frequently used where producers require working capital and have limited access to unsecured corporate loans. |
| LC-Backed Trade Flows | End buyers issue trade letters of credit in favour of suppliers. Sellers discount LCs or use them for collateralised funding, reducing working capital strain and improving certainty of payment. Risk sits primarily on the issuing bank, subject to confirmation and country risk assessment. |
| Stock Finance And Repo Structures | For storage-focused flows, banks or SPVs purchase title to inventory and agree repo terms with traders. The trader keeps operational control but finances stock at agreed haircuts and margining rules. Term contract deliveries and offtakes link into this inventory cycle. |
In professional trading, almost every commodity is priced as a differential to a benchmark. Discounts and premiums exist, but they reflect quality, freight, location, credit, and occasionally distress, not risk-free arbitrage. The large, clean, recurring discounts promoted in retail broker chains are inconsistent with how liquid markets behave.
| Type | Characteristics |
|---|---|
| Professional Differentials | Expressed as benchmark plus or minus a modest adjustment (for example a few dollars per barrel or tens of dollars per tonne). Linked to quality and location, and negotiated between entities with tankage, shipping access, and credit lines. Hedged through futures and swaps where liquidity exists. |
| Genuine Discount Opportunities | Linked to identifiable risk factors such as sanctions exposure, off-spec product, distressed counterparties, or challenging locations. Captured by trading houses and funds with specialist risk, legal, and compliance expertise. Rarely, if ever, broadcast through generic “soft offers” and long broker chains. |
| Retail “Discount Commodity” Narratives | Claims of double-digit percentage discounts to benchmarks, available on large recurring volumes, sourced from unnamed producers or mandates, and passed along unverified broker chains. The economics ignore competition and hedging constraints and usually exist to justify advance fees or “registration” charges, not to describe real trades. |
Term contracts are awarded to counterparties that combine operational capability, credit strength, and risk management. Introducing multiple unregulated intermediaries with no balance sheet, no operational function, and no compliance track record adds friction and risk, but no measurable value to producers or real buyers. As a result, large producers and refiners work with a very short list of intermediaries, if any, and focus on entities their banks and auditors recognise.
Real commodity and petroleum traders treat term flows as part of a broader risk and funding portfolio. Each contract is evaluated not only on headline margin but also on inventory exposure, credit risk, and hedge effectiveness. This environment leaves little scope for simple, high-margin arbitrage accessible to unqualified intermediaries.
The capital we help arrange is reserved for transactions that match the way professional markets operate: defined projects, proven cash flows, identifiable collateral, and counterparties that clear KYC and credit. That includes structured trade finance for real flows, project and asset backed facilities, and sponsor driven transactions in sectors where risk can be measured, documented, and monitored. It does not include speculative broker-chain propositions or discount narratives that fail basic commercial and legal tests.
Financely provides private credit and trade finance advisory, helping established businesses and sponsors structure, underwrite, and place bankable facilities through regulated lenders and credit funds. Mandates are handled on a best efforts basis, with emphasis on deal preparation, lender fit, and documentation that reflects how banks and institutional investors actually view risk.
If you want to understand where we operate in trade, project and private credit markets, and how we think about risk, structure and execution, you can review our services and approach on our main website.
Visit Financely GroupDisclaimer: Financely acts as advisor and arranger through regulated partners. We are not a bank and do not hold client funds. Any financing or trade structure referenced on this page is subject to underwriting, KYC, AML, sanctions screening, legal review, documentation, perfected security, and approvals by relevant stakeholders. No public offer or solicitation is made on this page.
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