Crude Oil SPA Red Flags: How to Read a Buyer's LOI

A buyer’s letter of intent (LOI) is the first document a seller sees, and often the first place a weak or fraudulent counterparty gives themselves away. In crude oil trading, the LOI sets the frame for the sales and purchase agreement (SPA). If the LOI is vague, inconsistent or evasive, the SPA that follows rarely improves.

This guide covers what a serious buyer’s LOI should contain, the red flags that should slow you down, and what to do before you move to SPA drafting. It is general information, not legal advice. Have counsel review any binding document.

What a Credible LOI Actually Does

An LOI is usually non-binding. It signals intent and outlines the commercial terms a buyer is prepared to negotiate. A credible one is specific about who the buyer is, what they want, and how they will pay.

At minimum, expect:

  • Full legal entity name, registration details and signatory authority
  • Product specification: grade, API gravity, sulphur content, origin
  • Volume and delivery schedule: per cargo and over the term
  • Delivery terms: Incoterm, load and discharge ports, laycan windows
  • Pricing basis: benchmark and differential, for example Brent plus or minus a stated premium
  • Payment instrument and timing: for example a confirmed letter of credit from a named bank, or a stated alternative
  • Inspection and quality arrangements: independent inspector, and who pays

If several of these are missing, you are reading a template, not an intention to buy.

Red Flag 1: The Buyer Cannot Be Identified

Watch for an LOI that arrives from a free email domain, a signatory with no verifiable title, or an entity with no registry record. Other warning signs include a buyer who describes themselves as a “mandate” holding someone else’s end-buyer and will not name the principal.

Check the legal entity in the relevant company registry, confirm the signatory’s authority, and compare the address and domain against independent sources. Our guide on how to verify a crude oil seller uses the same techniques, applied to the other side of the table.

Red Flag 2: Pricing That Doesn’t Reflect the Market

A buyer who offers a price well above the prevailing benchmark for the grade is not being generous. Inflated headline prices are a common way to attract a seller, with the real cost surfacing later as fees, “performance bonds” or service charges you are asked to pay.

Equally, vague pricing such as “market price at time of loading” with no named benchmark, quotation period or differential leaves the economics undefined. Ask for the benchmark, the pricing window and the differential in writing.

Red Flag 3: Volumes That Don’t Match the Buyer’s Profile

Ask whether the volume fits the entity. A newly registered company with no storage, refining or trading history asking for multiple million-barrel monthly cargoes, with no financing evidence, is a mismatch. Genuine buyers can usually explain their offtake: a refinery slate, a trading book, or a storage position.

Red Flag 4: Unclear or Unusual Payment Terms

Payment is where most failures happen. Be cautious when the LOI:

  • Refers to a payment instrument without naming the issuing bank
  • Offers an unconfirmed or “transferable” instrument with no confirming bank
  • Proposes that you pay for inspection, escrow or “insurance” before the buyer funds anything
  • Uses unusual instruments or terminology that the buyer cannot explain plainly

Request a proof-of-funds statement or bank comfort through your own bank, not through a contact supplied by the buyer. Verify bank details independently using publicly listed numbers.

Red Flag 5: Pressure, Secrecy and Process Shortcuts

Real transactions can move fast, but they do not demand that you skip due diligence. Treat these as warnings:

  • Demands to sign an NCNDA or a non-circumvention clause with large penalties before basic identity checks
  • Refusal to allow a video call or site visit
  • Insistence on dealing only through a chain of intermediaries
  • A “mandate” structure in which each layer asks for a fee

We cover the last pattern in depth in 5 red flags in petroleum deal documents that indicate fraud.

Red Flag 6: Inspection, Title and Termination Terms That Favor Only the Buyer

Read the LOI’s outline for the SPA. Concerning terms include inspection by an inspector the buyer alone selects, title transferring before payment is secured, no remedy for late payment, or termination rights that sit entirely with the buyer. These are negotiable in a balanced deal. A buyer unwilling to discuss them is telling you how the relationship will go.

A Simple Pre-SPA Checklist

Before you agree to draft or sign an SPA:

  1. Verify the buyer’s legal entity, registry record and signatory
  2. Confirm the end buyer or offtake rationale
  3. Validate the payment instrument and issuing or confirming bank independently
  4. Check pricing against the benchmark and the quotation period
  5. Agree independent inspection and clear title-transfer sequencing
  6. Have a lawyer review the SPA and any NCNDA

If a buyer fails two or more of these, pause the deal.

Use a Broker Who Does This Work for You

Screening counterparties takes time and experience. A good broker does this routinely. If you are weighing intermediaries, read our checklist on how to vet a crude oil broker before you sign anything.

Get a Second Set of Eyes on Your LOI

If you have received a buyer’s LOI and want an experienced read before you respond, book a consultation and tell us about the transaction. If you are ready to work with BarrelBridge on a mandate, you can apply here.