Letter of Credit for Petroleum Products: How Financely Secures Funding for Your Transactions

The petroleum trade is a high-stakes game. Deals move fast, contracts shift hands, and payment security is everything. If you’re sourcing petroleum products—whether it’s crude oil, diesel, jet fuel, or LNG—you know that buyers and sellers rarely shake hands on trust alone. The sheer volume of capital involved makes a letter of credit (LC) more than a preference—it’s a necessity.

At Financely, we specialize in structuring secure trade finance solutions for petroleum transactions. We work with traders, importers, and exporters to unlock capital, reduce risk, and smooth out cash flow disruptions. Whether you’re purchasing a 50,000 MT cargo of AGO or moving aviation fuel across borders, our tailored LC structures help you close deals with confidence.

Why a Letter of Credit is the Backbone of Petroleum Deals

Petroleum trading isn’t like buying office supplies. It’s a cash-intensive business where missteps can cost millions. Without a proper payment mechanism, traders risk delayed shipments, frozen working capital, or even complete deal breakdowns.

A Letter of Credit (LC) acts as a financial bridge between buyer and seller, ensuring that funds move only when specific conditions are met. It guarantees that a seller gets paid as long as they meet the agreed shipping terms—think along the lines of SGS certification, bill of lading, or certificate of origin. Banks or NBFCs like Financely issue these LCs, reassuring both parties that money won’t change hands unless obligations are fulfilled.

We structure LCs to fit the deal, whether it’s sight LCs, deferred payment LCs, or standby LCs (SLOCs) for petroleum transactions. If your buyer isn’t keen on prepayment but your supplier refuses to ship without cash security, an LC brings both sides to the table.

Types of Petroleum Products We Finance

Petroleum isn’t a one-size-fits-all market. Different fuels, different specifications, different trading risks. The LC structure for a crude oil transaction won’t look the same as one for LNG. Here’s a breakdown of the common petroleum products we help finance:

• Crude Oil (Bonny Light, Brent, WTI, etc.) – Raw, unrefined, and often traded in large volumes with long settlement cycles. Requires strong banking relationships.
• Diesel (Automotive Gas Oil - AGO) – Used in transport and industry, often sold in bulk. Traders frequently need back-to-back LCs to secure supply.
• Jet Fuel (A1, JP54) – A high-specification product with strict delivery terms. Refinery-backed LCs or standby letters of credit (SLOCs) work best here.
• Liquefied Natural Gas (LNG) – Requires tailored LC structures due to the complexities of floating storage, regasification, and destination flexibility.
• Mazut, Fuel Oil, Bitumen – Often sold under documentary LCs (DLCs), ensuring the cargo meets industry specifications before funds are released.

Each transaction carries its own risks—price volatility, storage costs, regulatory compliance. That’s why our financing structures are tailored, ensuring you don’t get locked into rigid bank requirements that don’t fit your business model.

How Financely Structures Funding for Petroleum Transactions

At Financely, we handle the complexities of petroleum trade finance so you can focus on closing deals. Our solutions bridge cash flow gaps, mitigate counterparty risk, and provide working capital to scale your transactions.

1. Back-to-Back Letter of Credit

If you’re a trader without the balance sheet strength to issue an LC yourself, we arrange a back-to-back LC structure. We issue an LC to your supplier based on the LC you receive from your buyer. This setup keeps your capital free while ensuring both parties meet their obligations.

2. Standby Letter of Credit (SLOC)

Some deals require extra payment security. A standby LC serves as a financial guarantee that the buyer will fulfill payment—even if delays or disputes arise. This structure is commonly used in long-term supply contracts where the seller needs a fallback payment mechanism.

3. Documentary Letter of Credit (DLC)

For petroleum shipments, a DLC ensures the seller gets paid only when all agreed documents—such as the **bill of lading (BL), SGS inspection report, and vessel tracking confirmation—**are submitted. This protects both buyer and seller from fraud and shipping discrepancies.

4. Revolving Letters of Credit

For traders executing frequent shipments, a revolving LC allows multiple transactions under the same credit facility. Instead of negotiating new LCs for every shipment, funds revolve as previous transactions settle, saving time and reducing paperwork.

5. Trade Credit Insurance for Added Protection

Credit risk can kill a petroleum deal faster than a market crash. We arrange trade credit insurance to safeguard against buyer default. This gives sellers the confidence to extend payment terms while securing financing at better rates.

6. Private Placement & Structured Trade Finance

For traders scaling operations, a private placement (Reg D) can be an alternative funding route. Instead of relying solely on debt, we structure trade-linked securities backed by receivables. This injects liquidity into your trade cycle without tying up your balance sheet.

What It Takes to Succeed: Criteria for Clients

Not every trader qualifies for petroleum trade financing. Banks and NBFCs assess risk carefully before issuing an LC or extending credit. Here’s what we look for:

• Proven Track Record – A few successful trades under your belt can go a long way. Lenders want to see that you can execute deals reliably.
• Credible Buyer and Seller – Who’s on the other side of the transaction? Strong counterparties with verifiable track records make financing smoother.
• Proper Documentation – Purchase orders, sales contracts, bill of lading (BL), and product specs—having these ready speeds up funding approvals.
• Upfront Cash Commitment – While LC financing covers most of the transaction, some initial cash (usually 10-20%) is often required.
• Clear Exit Strategy – How will the deal be settled? Whether through a final sale, rolling contract, or pre-arranged off-taker, clarity matters.

Why Choose Financely for Petroleum Trade Finance?

Banks move slow. Compliance roadblocks delay transactions. And traditional lenders rarely understand the fast-moving nature of petroleum trading. At Financely, we work with traders—not against them.

We provide customized trade finance solutions designed for real-world deal flow. Need an LC fast? We move quicker than most traditional lenders. Need flexibility? Our structured solutions adapt to your trade cycle, so you’re never boxed in by one-size-fits-all banking policies.

Petroleum trade finance is complex, but it doesn’t have to be a headache. Whether you need a standby LC, trade credit insurance, or structured trade finance, we structure deals that work for your business.