The Hidden $40-Per-Barrel Cost Driving Oil Prices Higher

Robert Rapier is a chemical engineer in the energy industry. He has 25 years of international engineering experience in the chemical, oil and gas, and…

When Americans think about the price of oil, they usually focus on the number quoted every day in financial markets. If Brent crude is trading above $100 a barrel or West Texas Intermediate is near $100, those numbers become shorthand for whether oil is expensive or cheap. But that market price is only part of what ultimately determines the cost of getting crude oil to a refinery.

But transportation has become a cost that has become impossible to ignore. Reuters recently reported that shipping roughly 2 million barrels of crude from the United States to Japan aboard a very large crude carrier could cost about $81 million. That works out to approximately $40.50 for every barrel on the ship, compared with roughly $9 million for a similar voyage a year earlier. At current rates, freight alone can represent a huge addition to the underlying value of the oil.

For most consumers, tanker rates are an obscure corner of the energy market. Yet the extraordinary increase in shipping costs is helping reshape global oil flows and adding another layer of expense to a market already dealing with elevated crude prices, refinery constraints, and geopolitical risk.

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