AKTUELLT JUST NU

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

Physical oil can cost about $38 a barrel more to deliver, as tanker rates surge.
Shell, LNG exporters and refiners stand to gain from tight fuel supplies.
Tobin Marcus sees a prolonged standoff with Iran.
Europe’s low gas storage makes winter weather a key variable.

What I’m hearing from energy insiders

Oil, in reality, is $125 per barrel or higher.

That’s the real cost of a barrel of oil because buying the physical commodity is a very different story from a number on traders’ screens.

Oil futures are just that: paper contracts indicating a price today, tomorrow, next month or further out.  If you want to buy the physical commodity, it may be a totally different story — and price.

As I’ve reported, prices for oil delivery have skyrocketed. Last week, a VLCC (aka a “supertanker” in non-shipper parlance) was chartered from the U.S. Gulf Coast to China for $76 million. Another very large crude carrier went for $77 million from the U.S. to South Korea. That’s 10 times more than the price of the same trip less than one year ago.

Assuming these ships hold about 2 million barrels of oil, that charter price means each barrel on the ship costs about $38 over the price of the oil itself.

I’m certainly not saying to avoid looking at oil futures prices, but you need to know that the price on the CNBC screen or CNBC.com isn’t always the full price being paid. These days, any company that needs oil shipped by sea, rail or truck will pay a hefty premium over the price of the oil itself. So, while the volume of oil moving through Hormuz is closing in on pre-war levels, costs are not. And there’s no sign that they’re going anywhere but up.

You know what else is up? The stocks of the shipowners. Look at their moves this month and this year.

On a more serious note, I want to express my condolences for the awful attacks on the airport in Riyadh, Saudi Arabia. The cowardly strike on civilians—some of whom were religious pilgrims—took the lives of at least 14 people and injured more than 300. 

The airport was attacked at least three times as travelers and energy industry professionals from around the world were flying into Riyadh for the World Petroleum Council conference. I was scheduled to fly in on Saturday, but the trip was canceled because of the strikes. The WPC went on as planned — here’s one panel that took place Tuesday — and I look forward to seeing all my global energy friends again soon.

Thanks for reading—and watching. Be safe in these crazy and often scary times.

Brian