Letter of Intent (Commodity) Template

In plain language: Identifies the buyer and seller by full legal name and jurisdiction, and states the purpose of the LOI — to outline terms for a proposed commodity transaction.

Common mistake: Identifying parties by trade name or individual name rather than the registered legal entity. If the LOI is referenced in a dispute, an unregistered name can make the document harder to enforce.

In plain language: Describes the exact commodity, grade, and quality parameters the goods must meet, referencing recognized industry standards or testing methods.

Common mistake: Using generic descriptions like 'standard grade' without referencing a recognized specification. Vague grade language is the single most common trigger for commodity disputes at delivery.

In plain language: States the total volume, unit of measure, delivery frequency, and whether the quantity is firm or subject to adjustment.

Common mistake: Writing 'approximately' without a tolerance range. Without a defined variance — e.g., plus or minus 5% — disputes arise over whether a short delivery constitutes a breach.

In plain language: States the agreed price or the benchmark index and premium/discount formula used to calculate the final price, and the currency.

Common mistake: Omitting the pricing date or index publication source. If Brent crude is the reference but no edition or publisher is named, parties can use different quotes for the same date.

In plain language: Specifies how and when payment will be made — irrevocable letter of credit, wire transfer, or documentary collection — and the banking coordinates.

Common mistake: Leaving payment terms as 'to be agreed.' Even in an LOI, ambiguous payment terms give the seller no basis to arrange financing or logistics, delaying the entire transaction.

In plain language: Confirms each party's right to appoint an independent inspector at loading and/or discharge, and establishes whose test result controls in case of a discrepancy.

Common mistake: No umpire provision. Without a tiebreaker, contradictory inspection results create a standoff that halts delivery and triggers costly arbitration.

In plain language: Restricts the seller from negotiating with other buyers for the duration of the exclusivity period, and requires both parties to keep the transaction terms confidential.

Common mistake: Omitting an end date on the exclusivity period. An open-ended exclusivity clause can lock the seller out of the market indefinitely if the buyer delays.

In plain language: Clarifies that the LOI is not a binding purchase commitment, and states the intended timeline for negotiating and signing the definitive sale-and-purchase agreement.

Common mistake: Failing to include a non-binding disclaimer at all. Without it, a well-drafted LOI with specific commercial terms can be construed as a binding contract in some jurisdictions.

A commodity letter of intent is a formal written document in which a buyer or seller expresses their intention to complete a commodity transaction — covering goods such as fuel, agricultural products, or metals. It outlines the key commercial terms before both parties invest time and cost in drafting a full sale-and-purchase agreement. It is generally non-binding except for specific provisions like confidentiality.

In most jurisdictions, a commodity LOI is not a binding contract unless it explicitly states otherwise or contains terms specific enough that a court treats it as an agreement. To keep it non-binding, include a clear disclaimer stating it is a statement of intent only. Certain provisions — confidentiality, exclusivity, and break fees — can be made binding within an otherwise non-binding LOI by identifying them specifically.

A letter of intent outlines the proposed terms at a high level and is typically non-binding — it signals intent and anchors the negotiation. A sale-and-purchase agreement is the definitive binding contract that governs the full transaction, including force majeure, inspection procedures, dispute resolution, and title transfer. The LOI is the starting point; the sale-and-purchase agreement is the finish line.

No — this template is designed for direct use by buyers, sellers, or their authorized representatives. If a broker is involved, add a clause identifying the broker and confirming commission arrangements to avoid disputes after the transaction closes.

The template is drafted broadly to cover any physical commodity trade — petroleum products and fuel, agricultural commodities such as grain and oilseeds, base and precious metals, and industrial raw materials. Adjust the grade specification clause to reference the appropriate industry standard for your specific commodity.

Countersignature by both parties is strongly recommended, even though the LOI is non-binding. A countersigned and dated LOI confirms that both parties reviewed and accepted the outlined terms, reducing scope creep and misunderstandings during the definitive contract negotiation.

Fourteen to thirty calendar days is the typical range for commodity transactions. Complex international trades involving letters of credit, multiple shipments, or regulatory approvals may warrant 30 to 45 days. The period should be long enough to complete due diligence and negotiate the final agreement, but short enough to protect the seller from an indefinite market hold.

An irrevocable letter of credit is the most widely used instrument for international commodity transactions because it protects both sides — the seller receives guaranteed payment once shipping documents are presented, and the buyer controls the documentary requirements. TT wire transfers are used for smaller or established trading relationships where counterparty risk is lower.

This template is designed for a single proposed transaction or shipment cycle. For a long-term or recurring supply arrangement — such as a monthly fuel supply or an annual grain off-take — use a Supply Agreement or Off-take Agreement template, which includes provisions for volume adjustments, price reviews, and multi-year term governance.