HANDLING UNIT PRICE CHANGES IN CRUDE OIL L/C AMENDMENTS

QUESTION

Dear Sir,

I hope this message finds you well.

I would like to seek your guidance regarding the handling of amendments to a Crude Oil Letter of Credit (L/C).

At the time of L/C issuance, we received two proforma invoices indicating a unit price of USD 80.620 per barrel.

Subsequently, the customer requested an increase in the L/C amount. The amendment was issued, and the unit price remained unchanged at USD 80.620 per barrel.

Now, the customer has made another request to enhance the L/C amount by USD 22,000. However, this time, they have submitted revised proforma invoices showing an updated unit price of USD 81.50 per barrel.

This has caused some confusion on how to proceed.

Is it permissible for the L/C to be amended with a different unit price than what was originally stipulated?

Your advice on how to handle this situation would be greatly appreciated.

Best regards,

Jawad Ahmed

Askari Bank, Pakistan

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ANSWER

Dear Mr. Ahmed,

Thank you for your question.

Crude oil prices are inherently volatile and often subject to market fluctuations. It is common for contracts to specify that the final price will be determined at the time of shipment, often based on pricing data provided by benchmark organizations such as S&P Global Commodity Insights (Platts).

For example, an L/C may stipulate pricing terms as follows:

“The price shall be the average of five ‘Mean of Platts’ quotations for HSFO 180CST under the ‘Singapore’ heading, plus a premium of USD 23.00 per metric tonne. The five quotations will be based on the Bill of Lading (B/L) date, two days prior, and two days following. If no quotation exists on the B/L date, the two prior and two subsequent quotations will be used instead.”

In your case, the L/C appears to be a standard L/C with fixed pricing. When market prices shift, it is not uncommon for the buyer and seller to renegotiate terms, including the unit price. If both parties agree to a revised price and provide updated documentation—such as a revised proforma invoice—your bank may consider processing the amendment based on the applicant’s request.

Best regards,

Mr. Old Man