Fuel trading is a high-stakes business. Every year, millions of dollars are lost due to fraudulent deals, fake allocations, and contract circumvention.
Scammers are getting more sophisticated, using forged documents, false refinery claims, and non-existent cargoes to trick buyers and intermediaries. If you’re in the business of trading EN590 diesel or Jet A1 fuel, proper due diligence is not optional—it’s essential.
In this article, we’ll cover how traders can protect themselves from fraud, identify red flags, and implement risk management strategies to ensure safe transactions.
1️⃣ The Biggest Fraud Risks in Fuel Trading
🔹 Fake Allocations & Bogus Sellers Scammers claim to have large allocations of EN590 or Jet A1 from refineries but cannot prove product ownership. They issue false proof of product (POP) documents to secure deposits from unsuspecting buyers.
🔹 Phantom Shipments & Stolen Cargo Some fraudsters sell fuel that doesn’t exist, providing fake shipping documents. Others resell the same cargo multiple times, leaving unsuspecting buyers stranded.
🔹 Circumvention & NCNDA Violations Even legitimate deals are at risk of contract circumvention. Buyers and sellers sometimes attempt to cut out intermediaries, violating NCNDA (Non-Circumvention, Non-Disclosure Agreement) terms.
🔹 Payment Scams Some traders send fuel without securing proper payment terms—only to realize later that the buyer is unverified, leading to non-payment and financial loss.
🚨 Case Study: In 2024, a European company lost $8 million in an EN590 deal when the seller-provided forged refinery documents and disappeared after receiving a deposit.
2️⃣ How to Identify Fraud & Red Flags in Fuel Trading
✅ Verify the Seller’s Refinery Relationship 🔹 Request refinery-issued documents (e.g., proof of allocation, refinery contract). 🔹 Verify with refineries directly—avoid taking documents at face value.
✅ Check Company Registration & Track Record 🔹 Look up the seller’s company registration, physical office, and trade history. 🔹 Search for any negative reports, lawsuits, or past fraud claims.
✅ Validate the Vessel & Shipping Details 🔹 Cross-check shipping documents (BOL, SGS reports) with port authorities. 🔹 Use real-time vessel tracking tools (like MarineTraffic) to confirm cargo movement.
✅ Confirm the Payment Structure 🔹 Use escrow accounts or bank guarantees (SBLC, DLC)—never pay directly to an unknown seller. 🔹 Avoid deals where the seller demands a large upfront deposit without secure terms.
🚨 Red Flag: If a seller or buyer refuses to provide clear documentation or pushes for rushed payments, it’s a major warning sign.
3️⃣ Essential Due Diligence Steps for Safe Fuel Trading
🔹 Step 1: Perform Background Checks on Counterparties ✔ Use third-party verification services to screen buyers & sellers. ✔ Request trade references from previous deals.
🔹 Step 2: Secure a Legally Binding Contract ✔ Draft a detailed SPA (Sales & Purchase Agreement) with clear delivery & payment terms. ✔ Ensure the contract includes NCNDA & IMFPA (Irrevocable Master Fee Protection Agreement) to prevent circumvention.
🔹 Step 3: Use Secure Payment Terms ✔ Demand financial proof of funds (POF) before finalizing deals. ✔ Use Letters of Credit (LC), Standby Letters of Credit (SBLC), or escrow payments to protect funds.
🔹 Step 4: Conduct Independent Product Inspection ✔ Hire reputable third-party inspectors (e.g., SGS, Bureau Veritas, Intertek) to verify fuel quality. ✔ Request real-time lab test reports before cargo is released.
🚨 Case Study: A trader avoided a $12 million scam by hiring an SGS inspector, who discovered that the so-called “Jet A1” was low-grade kerosene.
4️⃣ How to Protect Yourself from Contract Circumvention
Many intermediaries in oil trading face circumvention, where a seller or buyer tries to bypass brokers and close deals directly. Here’s how to prevent it:
✅ Use a Strong NCNDA & IMFPA Agreement 🔹 Ensure the NCNDA (Non-Circumvention, Non-Disclosure Agreement) is signed before discussions start. 🔹 Include an IMFPA (Irrevocable Master Fee Protection Agreement) to protect commissions.
✅ Monitor Deal Communications Closely 🔹 Never reveal direct seller-buyer details unless an agreement is in place. 🔹 If a party tries to sideline intermediaries, take legal action.
✅ Work with Trusted Industry Partners 🔹 Build relationships with vetted refineries, suppliers, and logistics firms to reduce risk. 🔹 Avoid brokers who lack a proven trade history.
🚨 Red Flag: If a deal suddenly stalls after introductions, it could mean circumvention is happening behind the scenes.
5️⃣ Key Risk Management Strategies for Fuel Traders
✅ Always verify product authenticity – Don’t rely on documents alone. ✅ Use secure payment methods – SBLC, DLC, and escrow are best. ✅ Work only with established trading partners – Avoid unknown, unverified brokers. ✅ Hire independent inspectors (SGS, Intertek, Bureau Veritas) – Ensure cargo quality before release. ✅ Have strong legal agreements – Protect your interests from contract breaches.
📌 Final Thought: Fraud in oil trading is growing more sophisticated, but traders who take proper due diligence measures can avoid major financial losses.
💬 Let’s Discuss!
Have you encountered fraud risks in fuel trading? What steps do you take to verify buyers and sellers?
Drop a comment below or DM us to discuss how Stratos Trading ensures 100% secure transactions!
🔗 #FuelTrading #DueDiligence #OilTrade #EN590 #JetA1 #FraudPrevention #RiskManagement #StratosTrading