The Unconditional Dip Test Authorization (UDTA) in oil trading allows a buyer to conduct a dip test—a physical inspection of the oil’s quality and quantity in the seller’s storage tank—without preconditions like payment or additional approvals. The dip test is typically performed by an independent inspection agency like SGS, a globally recognized firm for quality and quantity verification in commodity trading. Below is an outline of the standard SGS procedure for a dip test in the context of a UDTA, based on typical oil trading practices.

Standard SGS Procedure for UDTA Dip Test

1. Pre-Inspection Agreement:
   • UDTA Issuance: The seller provides the UDTA document, granting the buyer or their representative (e.g., SGS) permission to access the storage tank for testing without preconditions. This is typically part of the transaction documents, such as the Sales Purchase Agreement (SPA) or Commercial Invoice (CI).
   • Engagement of SGS: The buyer and seller agree to appoint SGS (or another reputable inspection agency) to conduct the dip test. Both parties sign an agreement with SGS outlining the scope of work, including testing parameters (e.g., API gravity, sulfur content, water content, etc.).
   • Coordination with Terminal Operator: SGS coordinates with the storage facility or port authority (e.g., Rotterdam, Houston) to gain access to the tank, as the UDTA implies no barriers to inspection.
2. Scheduling and Access:
   • SGS schedules the dip test at a mutually agreed time, ensuring compliance with port or terminal regulations.
   • The UDTA ensures the terminal operator allows SGS access to the tank without requiring the buyer to pre-pay for tank storage or other fees (though, as noted earlier, this may not always be feasible in practice due to modern port regulations).
3. Dip Test Execution:
   • Physical Sampling: SGS inspectors physically access the storage tank and take samples of the oil using standardized methods (e.g., manual dipping or automated sampling). This involves:
     • Measuring the quantity of oil in the tank (e.g., volume in barrels or metric tons).
     • Collecting samples from different levels of the tank (top, middle, bottom) to ensure representativeness.
   • Equipment: SGS uses calibrated tools like dip rods, tapes, or inline samplers to ensure accuracy.
   • Chain of Custody: Samples are sealed and labeled in the presence of both buyer and seller representatives (if applicable) to maintain integrity.
4. Laboratory Analysis:
   • SGS transports the samples to an accredited laboratory for analysis based on the specifications in the SPA (e.g., API gravity, viscosity, sulfur content, sediment, water content).
   • Tests are conducted following international standards, such as those set by the American Petroleum Institute (API) or ASTM International.
5. Reporting:
   • SGS compiles a detailed Quality and Quantity (Q&Q) Report, which includes:
     • Quantity verification (e.g., total volume or weight of oil in the tank).
     • Quality analysis results (e.g., compliance with contractual specifications).
     • Any discrepancies or anomalies observed during the inspection.
   • The report is issued to both the buyer and seller, typically within a few days of the dip test, depending on the complexity of the analysis.
6. Post-Inspection:
   • If the Q&Q report confirms the oil meets the agreed specifications and quantity, the buyer proceeds with payment or further transaction steps (e.g., issuing a Letter of Credit or transferring funds).
   • If discrepancies are found, the parties may renegotiate or resolve issues based on the contract terms.
   • The UDTA’s role ends once the dip test is completed and the report is issued, as it solely facilitates the inspection process.

Important Notes:

• UDTA Challenges: As mentioned earlier, the “unconditional” nature of the UDTA is often theoretical. In practice, port authorities (e.g., Rotterdam post-2018) may require a Tank Storage Agreement (TSA) or payment for tank access, which can conflict with the UDTA’s purpose. SGS will adhere to terminal rules, which may delay or complicate the process.
• SGS Neutrality: SGS acts as an impartial third party, ensuring no bias toward buyer or seller. Their procedures follow international standards to maintain credibility.
• Costs: The cost of the SGS inspection is typically borne by the buyer, though this can be negotiated in the SPA.
• Variations by Region: Procedures may vary slightly depending on the port or country (e.g., Rotterdam, Houston, Singapore), as local regulations govern tank access and testing protocols.

Limitations:

• If the UDTA is not honored by the terminal (e.g., due to port regulations requiring pre-paid tank storage), SGS cannot proceed until those conditions are met.
• The UDTA and SGS dip test do not guarantee the transaction’s success; they only verify the product’s existence and quality at the time of inspection.