Brian Sullivan: Why the 'real' price of oil is likely $30-$40 higher than where it is now

An oil futures price is a paper-contract price for delivery at a stated time. It appears on trading screens and may refer to today, next month, or farther ahead. It is not automatically the complete cost of receiving oil at a specific destination.

Physical buying adds the costs required to move the commodity. The article highlights sea transport, but companies may also pay premiums when oil travels by rail or truck. Those charges sit above the quoted oil price. They can change sharply when delivery capacity becomes expensive.

The article estimates that a tanker trip could add about $38 per barrel. That means oil shown at a benchmark price can arrive at a much higher effective cost. Buyers therefore need to distinguish the screen price from the delivered price, especially when transport costs are rising and show no sign of falling.

When tanker prices surge, shipping can add a substantial premium to each barrel. The article’s calculation puts that extra cost at about $38 per barrel. This is separate from the oil’s own price, so the delivered commodity becomes much more expensive than the number shown on a trading screen.

The example involves a VLCC chartered from the U.S. Gulf Coast to China for $76 million. Another very large crude carrier cost $77 million for a trip from the United States to South Korea. Assuming a ship carries about 2 million barrels, dividing the $76 million charter by its cargo produces approximately $38 per barrel.

That estimate shows why futures prices alone can mislead oil users. Companies needing physical supplies must pay the transport premium as well. The article says delivery costs are not returning to earlier levels and appear to be moving higher.

Higher transport costs raise the real price paid by companies that need oil delivered. The benchmark or futures quote covers the commodity’s indicated price, but not necessarily the cost of getting it to the buyer. Delivery premiums therefore make physical oil more expensive than the number displayed on a trading screen.

The article identifies sea, rail, and truck transport as routes that can carry these extra costs. Its tanker example adds about $38 per barrel to a cargo. That figure comes from a $76 million charter for a ship assumed to hold roughly 2 million barrels. The same basic mechanism applies when other transport charges rise.

For oil-consuming companies, the result is a higher delivered input cost and potentially tighter margins. The article notes that oil movement through Hormuz is nearing pre-war levels, yet transport costs are not. It sees no sign of those costs going anywhere but up.

The article presents a striking mismatch: the volume of oil moving through the Strait of Hormuz is closing in on pre-war levels, yet transportation costs remain elevated. In other words, restored or near-restored flow volumes have not brought delivery prices back to earlier conditions.

Tanker charters illustrate the gap. A VLCC voyage from the U.S. Gulf Coast to China cost $76 million, while another trip to South Korea cost $77 million. Those prices were about ten times higher than the same trip less than one year earlier. With roughly 2 million barrels aboard, the first charter added about $38 per barrel.

The article does not explain exactly why charter prices rose so sharply. It reports that costs are not declining and sees no sign they will do so soon. That means companies must continue treating transportation as a major part of oil’s real price, even as Hormuz volumes approach pre-war levels.

VLCC stands for very large crude carrier. The article explains that people outside the shipping industry commonly call these vessels supertankers. They transport large quantities of crude oil by sea and are central to long-distance international deliveries.

For its calculation, the article assumes a VLCC holds about 2 million barrels. That capacity lets readers translate a ship charter into a per-barrel delivery charge. A $76 million voyage divided across 2 million barrels works out to roughly $38 in shipping cost for each barrel, before counting the oil itself.

That scale matters because tanker prices can transform the economics of physical oil. The article reports another VLCC charter at $77 million from the United States to South Korea. Both voyages cost about ten times more than comparable trips less than one year earlier, showing how sharply transport expenses had increased.

When shipping oil by sea becomes unusually expensive, the article points to rail and truck delivery as other ways companies may move oil. These methods can provide alternatives to tanker transport, depending on the shipment’s route and requirements. The source does not compare their full economics or availability.

The key issue is that every delivery method carries a cost beyond the oil itself. The article says companies needing oil shipped by sea, rail, or truck will pay a hefty premium. For sea transport, a $76 million tanker charter added about $38 per barrel when spread across roughly 2 million barrels.

Rail and trucks may therefore offer different logistical choices, but the article does not say they are cheaper in this situation. It also does not discuss pipelines. The broader implication is clear: buyers must account for the complete delivery method, rather than relying only on an oil futures price.

The global benchmark shown on a trading screen reflects a futures contract or quoted oil price. It indicates what traders agree to pay for oil at a specified time. But a company buying physical oil must also arrange delivery. That creates a gap between the benchmark and the final cost.

The article’s tanker example makes the mechanism concrete. A VLCC voyage from the U.S. Gulf Coast to China cost $76 million. Assuming a cargo of about 2 million barrels, transportation alone added approximately $38 per barrel. The oil’s quoted price remained separate from that shipping charge.

The difference matters because physical buyers pay the full delivered cost. The article says premiums also affect oil moved by rail or truck. Even though oil flows through Hormuz are nearing pre-war levels, delivery costs remain high, with no sign of declining. Benchmark prices therefore do not always capture the price companies actually pay.