What Is an LOI? | Letter of Intent in Petroleum Trading


What Is a Letter of Intent (LOI)?

A Letter of Intent (LOI) is a formal document used by a prospective buyer to communicate its interest in purchasing a specific product under proposed commercial terms.

In petroleum and fuel trading, an LOI can help establish the buyer's requirements before the parties proceed to more detailed commercial documentation and due diligence.

An LOI may be used for transactions involving EN590 10 PPM, Jet A-1, D6, D2, LNG, LPG, gasoline, crude oil, Naphtha, LCO, Mazut, UREA, and other energy commodities.

What Does LOI Stand For?

LOI stands for Letter of Intent.

An LOI typically identifies the buyer, product, quantity, destination, proposed commercial terms, and other information relevant to the proposed transaction.

The exact requirements for an LOI can vary by seller, supplier, refinery, product, port, and transaction structure.

What Information Should an LOI Include?

A professional petroleum LOI may include:

• Buyer's full legal company name

• Company registration information

• Registered business address

• Authorized representative

• Contact information

• Product name and specification

• Required quantity

• Monthly or annual quantity, when applicable

• Delivery location or port

• FOB or CIF terms

• Proposed pricing or pricing structure

• Payment terms

• Delivery requirements

• Target delivery schedule

• Buyer's acceptance of applicable seller procedures

• Required documentation

• Authorized signature and company stamp
   

The information should be accurate and consistent with the buyer's corporate documentation.

LOI in Petroleum Trading

In international fuel transactions, an LOI may be an initial commercial document used to communicate a buyer's purchasing requirements.

A transaction may progress through several stages, for example:

Buyer Inquiry → LOI → Seller Review/SCO → ICPO → Commercial Invoice → Due Diligence → Inspection → Contract → Payment → Delivery

The actual sequence is determined by the parties and the applicable transaction procedure. There is no single universal procedure for every petroleum transaction.

LOI vs. ICPO

The terms LOI and ICPO are sometimes used interchangeably in informal fuel-trading communications, but they can serve different purposes.

An LOI (Letter of Intent) generally communicates a buyer's serious interest and proposed purchase requirements.

An ICPO (Irrevocable Corporate Purchase Order) is generally a more formal purchase-order document issued by the buyer with specific purchase terms.

Whether an LOI, ICPO, or both are required depends on the seller's procedures and the specific transaction.

Is an LOI Legally Binding?

An LOI is not automatically legally binding simply because it is called a Letter of Intent.
Its legal effect depends on the language used in the document, applicable law, the intentions of the parties, and the surrounding agreements.

Some provisions of an LOI can potentially create obligations even when the overall document is intended to be non-binding. Buyers and sellers should obtain appropriate legal advice before relying on an LOI as a contractual commitment.

LOI for EN590 10 PPM Diesel

A buyer seeking EN590 10 PPM diesel may use an LOI to identify the required quantity, specification, destination, delivery terms, pricing expectations, and other commercial requirements.
The seller may then review the buyer's requirements and determine whether the proposed transaction can proceed.

LOI for Jet A-1

For Jet A-1 aviation fuel, an LOI may identify the buyer's required volume, specification, destination, delivery terms, pricing structure, and proposed schedule.

Additional documentation and verification may be required before the transaction progresses.

What Happens After an LOI Is Submitted?

After receiving an LOI, the seller may review:

1. Buyer identity and corporate information

2. Product requirements

3. Quantity

4. Destination

5. Delivery terms

6. Pricing requirements

7. Payment structure

8. Transaction procedure

9. Compliance and due-diligence requirements
    

If the seller accepts the proposed commercial framework, the parties may move toward an SCO, FCO, ICPO, Commercial Invoice, contract, storage verification, inspection, or other transaction documentation, depending on the agreed procedure.

LOI and Seller Procedures

One important consideration for petroleum buyers is ensuring that the LOI accurately reflects the transaction being offered.

If a seller has provided a specific procedure, buyers should carefully review that procedure before submitting an LOI.

Where required, the buyer's LOI should clearly acknowledge the applicable commercial terms and seller procedure rather than introducing conditions that materially conflict with the seller's offer.

LOI Due Diligence

An LOI should not replace proper due diligence.

Before moving forward with a petroleum transaction, buyers should independently evaluate the seller, product availability, storage arrangements, terminal information, inspection process, contractual terms, pricing, payment requirements, and other relevant transaction details.

Sellers should likewise conduct appropriate due diligence on prospective buyers.

Frequently Asked Questions About LOIs

What does LOI mean in fuel trading?

LOI means Letter of Intent. It is a document used by a prospective buyer to communicate interest in purchasing a commodity and outline proposed transaction requirements.

Who issues an LOI?

An LOI is generally issued by the buyer or the buyer's authorized representative.

Is an LOI the same as an ICPO?

No. Although the documents can contain similar information, an LOI generally communicates intent and proposed requirements, while an ICPO is generally structured as a formal purchase order.

Can an LOI be used to purchase diesel?

Yes. LOIs are commonly used to communicate purchase requirements for petroleum products, including diesel and EN590 10 PPM.

Does an LOI guarantee a fuel transaction?

No. An LOI does not by itself guarantee product availability, delivery, payment, or completion of a transaction.

Does an LOI prove that a buyer has funds?

No. An LOI is not proof of funds. Financial verification, where required, is a separate matter.

What comes after an LOI?

The next step depends on the transaction. The parties may proceed to an SCO, FCO, ICPO, Commercial Invoice, contract, storage verification, inspection, or other agreed documentation.

Can a broker submit an LOI?

A broker or intermediary may submit an LOI on behalf of a buyer when properly authorized to represent that buyer. The parties should clearly identify the actual buyer and the intermediary's role.

Conclusion

A Letter of Intent (LOI) can be an important first-stage document in international petroleum trading. It allows a qualified buyer to communicate its purchasing requirements and proposed commercial terms while giving the seller an opportunity to evaluate the proposed transaction.

A professionally prepared LOI should be accurate, clear, commercially specific, and consistent with the applicable seller requirements.

For buyers and sellers dealing in EN590 10 PPM, Jet A-1, D6, D2, LNG, LPG, crude oil, gasoline, and other petroleum products, understanding the purpose and limitations of an LOI is an important part of navigating the fuel-trading process.