Key Points

• What buyers pay for is not just the crude oil itself.
• Transportation, insurance, and refining all incur significant costs.
• Geopolitical risks could drive up prices without any loss of supply.

When people see Brent crude oil at $100 per barrel, it’s easy to assume that this is the actual price paid by buyers. In reality, the cost including delivery to the port (CIF) could be much higher.

During times of security crises, this point is particularly important. According to a recent incident report by the UK Maritime Trade Operations Organisation, oil tankers in the Strait of Hormuz and its surrounding areas have been attacked again, reminding the market that even if there are no changes to crude oil itself, transportation costs may still rise.

So, where did the extra $30 go?

The first payment was for the cost of transporting the crude oil there.

A barrel of oil must be transported from the producer to the buyer. This usually involves pipelines, storage terminals, and oil tankers.

Companies that transport crude oil receive their payment first. If the routes become more dangerous, freight rates could rise rapidly.

This is also one of the reasons why oil prices have risen so sharply recently. Traders are not only reacting to the decrease in the number of barrels of crude oil, but they are also responding to the costs and risks associated with transporting this crude oil.

Insurance is another component of the bill. When oil tankers pass through high-risk waters, insurance companies raise the premiums to cover the risks of the cargo and the vessel.

In a calm market, these costs may still be manageable; however, in conflict zones, they could rise significantly.

Then banks and traders take a portion of it for themselves.

Crude oil transportation also requires financing.

A batch of goods may be worth tens of millions of dollars, and before the end buyer receives them, someone has to pay for that oil first. Banks, trade financing institutions, and commodity traders all make money by providing funds for these transactions and arranging the deals.

This is why a barrel of oil can become more expensive before it even reaches the refinery. What buyers pay for is not just crude oil, but also logistics, financing, and risk management.

Coinpaper recently emphasized this geopolitical premium in " JPMorgan Sees Oil Worth Just $94 as Iran Conflict Pushes Brent Above $115". This gap helps to explain why market prices can remain significantly higher than what some analysts consider to be the "fundamental" value of crude oil over the long term.

Refineries and the fuel market have incurred even more costs.

Crude oil is not the final product. It must also be refined into gasoline, diesel, or aviation fuel.

Refineries purchase crude oil and then process it to sell fuel products at a higher price. If there is a shortage of gasoline or diesel supply, refineries may still make more money even if the price of crude oil remains stable.

This is why the gap between crude oil prices and consumer fuel prices is rapidly widening. For this reason, refining profit margins are just as important as crude oil production.

So, who exactly took that extra $30?

There is no single winner.

A portion of the additional costs goes to shipping companies, another portion to insurance companies, some to banks that provide financing for goods and commodity traders, a part to warehousing and loading/unloading operators, and yet another portion typically goes to refineries.

During times of crisis, another layer of cost is added: the risk premium. Markets may charge a higher price simply because buyers are concerned about potential disruptions in the future.

This is why crude oil can also become much more expensive without an immediate collapse in production. Recent reports about the United States' emergency oil reserves and OPEC+ supply policies illustrate the same point from another perspective: the key is not just how much oil there is, but whether that oil can reach buyers smoothly and safely. Coinpaper