LIBOR

LIBOR, the London Interbank Offered Rate, was a benchmark interest rate representing the average rate at which major banks could borrow unsecured funds from one another. For decades, it played a central role in pricing loans, swaps, and derivatives, including those used in energy finance and trading.

In oil markets, LIBOR influenced the financing costs embedded in structured trades, inventory financing, and long-dated commodity swaps. Many contracts referenced LIBOR as the floating leg in interest rate calculations tied to commodity exposures.

Following manipulation scandals and declining transaction volumes, LIBOR has been phased out and replaced by risk-free reference rates such as SOFR. Nevertheless, legacy contracts and historical pricing models still reflect LIBOR conventions.

Understanding LIBOR remains important for interpreting older documentation, legacy hedges, and the evolution of interest rate risk in commodity markets.