The price of the underlying forward or futures oil contract, is paid before control of the instrument changes.  This is one of the many forms of buy/sell orders where the time and date of trade is not the same as the value date where the securities themselves are exchanged.

Forwards, like other derivative securities, can be used to hedge risk (typically currency or exchange rate risk), as a means of speculation, or to allow a party to take advantage of a quality of the underlying instrument which is time-sensitive.

In most oil contracts the price is fixed to the floating price of Brent, usually fixed as a discount to the three day average of "dated Brent".  So in most cases the future cost of the contract is not fixed, as it would be in a forward contract for other commodities.  In stead the margin between Brent and BLCO or some other Nigerian Crude oil is fixed.

One of the reasons for this is that delivery of the product could take up to 60 days of on-the-water time.  So it is understood that the price of the crude oil would slide up or down to accommodate changes in the overall market conditions.  Both buyers and sellers have accepted this flexibility because refined product prices are also flexible.

Pump price changes have been accepted in the marketplace.  Forward contracts generated on a world-wide commodities exchange in the oil market are really more attached to the futures market than to the actual physical marketplace.

You may regard Nigerian Oil Services BLCO Trading and Exchange Platform as a “forward and spot” platform because of our attachment to the futures commodities market, but as you read on you will see a distinction from that idea.
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Exchange for Physical

If physical product is required by the buyer of the futures contract, then an Exchange for Physical is initiated by serving notice to the futures exchange platform.

When this happens there are usually new conditions that are introduced to the contract.  These new conditions could be price, specifications as to the type of product to be delivered, the date of delivery; and these changes customize the contract so that the buyer actually get their preferred product rather than Brent, WTI or some other crude.  Then if the product required by the buyer is a Nigerian ultra low sulfur light crude oil then we take the delivery responsibility.

Nigerian Oil Services serves the commodities platform to provide contracted physical crude oil to satisfy the futures and forwards contracts that require future delivery of the physical crude oil.

What this does is to remove the stigma of off-OPEC irregularities (which keeps the off-OPEC pricing at a minimum) and replaces the irregularities with consistency of quantity, quality and secured delivery.  The end buyer will eventually pay more for the product because their risk has been removed.

The physical delivery is often initiated prior to contract origination and settlements and is made to crude oil depots that can accommodate that much product in storage until the contracts are settled.  Continued Below

This means there is already a market for the product and depots in place to complete distribution chain.

Now our buyers (refineries) can secure a forward contract with Nigerian Oil Services and know their product will be there prior to the settlement date.  That contract is then put on the commodities exchange platform legitimizing the transaction.  Or the contract originates there (futures) and we are assigned to fulfill it.

This also means sellers of Nigerian crude oil now have a legitimate buyer that takes delivery FOB and purchases the product as soon as the sellers inspection has been completed.

Finally Nigerian sellers can find a real buyer that is RWA to make a purchase and own the product.

The objective in performing (settling and fulfillment) a transaction is not to increase complexity.  It should be to reduce friction and make the purchase easier.

The Nigerian Oil Services trading and exchange platform has put in place a procedure that breaks the norm.  While there are always two contracts when a reseller involved; one with the supplier and one with the end user; there is no rule that both contracts need to look similar.

What our trading and exchange platform has instituted are two transaction that remove the risk, first to the supplier and second to the end user.

For the supplier the platforms capital (SBLC) is already in place with a fiduciary organization guaranteeing payment after delivery.  The delivery location is known by our platform.  The time of the lift is known.  All of the conditions upon which the product has been transacted are known.  The contract with the supplier is really an FOB purchase.  This removes the suppliers concerns.

The product is then delivered on a forward contract to the end buyer.  The buyers financial commitment is not executed until the buyer has already had the opportunity to inspect the product in their own port, the port of delivery (POD).

In this way, all of the buyers natural resistance to contracting has been removed since he is not making a financial commitment until after he has measured the quantity and quality of the product in his own facilities.

The answer to this question really gets to the money involved.  Does the platform have enough capital in order to absorb the risk and compensate service providers to do their jobs to accommodate a smooth delivery process?

The answer to this is that the platform has also provided all the necessary set-asides with their fiduciary financial institution in order to lay aside all of the concerns of the logistics supply chain about their performance compensation.  Everybody involved has been guaranteed compensation for their services through financial set-asides in the form of reserve cash accounts or bank instruments guaranteeing compensation after performance.

So when a supplier and an end buyer (refinery) contract with the Nigerian Oil Services Platform they know their written obligations will be satisfied and fulfilled.