A Letter of Intent (LOI) is the earliest formal document in a commodity trade sequence. It signals a buyer's genuine interest in a transaction without creating a legal obligation to complete the purchase.

LOI in the Deal Sequence

  1. Soft Probe — informal feeler, no document
  2. LOI — formal non-binding expression of interest (this stage)
  3. FCO / RWA — seller's formal offer in response
  4. ICPO — binding purchase commitment
  5. SPA — full contract

What an LOI Should Include

  • Buyer's full corporate name and registration number
  • Product specification and grade (e.g. EN590 10ppm, Jet A-1 DEF STAN 91-091)
  • Desired volume and delivery schedule
  • Target price or price formula
  • Delivery terms (FOB/CIF, named port)
  • Preferred payment instrument
  • Validity period (typically 3–5 business days)
  • Statement that the LOI is non-binding pending due diligence
Practical Note
In many petroleum market contexts, buyers skip the LOI and go directly to an ICPO once a credible seller has been found via a trusted platform. The LOI stage is most useful when dealing with a new counterparty where preliminary verification is required before committing.

Frequently Asked Questions

What is an LOI in commodity trade?

An LOI (Letter of Intent) is a preliminary, non-binding document issued by a buyer expressing their intention to purchase a commodity. It outlines the buyer's requirements — product, volume, price range, delivery terms — and invites the seller to respond with a formal offer. Unlike an ICPO, an LOI does not commit the buyer to the purchase.

What is the difference between an LOI and an ICPO?

The key difference is binding commitment. An LOI is non-binding — it is an expression of intent, not a purchase commitment. An ICPO (Irrevocable Corporate Purchase Order) is legally binding on the buyer once accepted by the seller. The LOI comes before the ICPO in the deal sequence.

When should a buyer issue an LOI instead of an ICPO?

Use an LOI when you want to explore pricing and terms before making a binding commitment — for example, when dealing with a new supplier for the first time. Once you have verified the seller and agreed on terms, upgrade to an ICPO to initiate the formal deal.