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

Physical oil delivery costs are substantially above futures prices: two U.S.-to-Asia VLCC charters cost $76 million and $77 million, about 10 times last year's rates and adding roughly $38 per barrel for a 2-million-barrel cargo. Shipping and energy costs remain elevated despite Hormuz oil volumes nearing pre-war levels; the article also reports attacks in Riyadh that killed at least 14 and injured more than 300. Analyst calls are broadly constructive on Shell, LNG exporters, refiners, ConocoPhillips, First Solar and TeraWulf, while European gas storage and winter weather remain key uncertainties.

Analysis

The market signal is not simply a higher oil benchmark: disrupted logistics can widen the gap between screen prices and delivered energy costs. That favors sellers with flexible export routes and can support product cracks where refined-product supply is tight, but it also raises feedstock and freight costs for import-dependent buyers. The key read-through is dispersion, not a uniform energy-sector windfall; tanker-rate strength is not directly investable through the mapped names.

Over the next 1–3 months, European gas storage and weather are the pivotal swing factors for LNG-linked earnings at Shell and TotalEnergies. A cold start to winter with constrained Qatari supply could sustain export-margin upside; warmer weather or a durable return of Qatari volumes would unwind it. For refiners, watch realized diesel and gasoline cracks—not just crude prices—to test whether tightness translates into earnings. Escalation around the Strait of Hormuz is a tail risk to freight, insurance, and physical availability, with potential demand destruction as the offset.

Contrarian point: elevated physical costs do not automatically accrue to producers. Freight, routing, and contract terms determine who captures the spread, while a rapid normalization can reverse scarcity premiums. First Solar’s tariff-driven pricing case is policy-dependent and needs confirmation in realized pricing and guidance; TeraWulf’s cited lease catalyst is distant and not yet a near-term earnings trigger.

Key Decisions for Investors

• Watchlist, not an automatic chase: favor Shell and TotalEnergies on a pullback if European storage remains weak and LNG export margins hold up. Reassess on a sustained return of Qatari supply, warmer-than-normal forecasts, or falling realized export margins.
• For Valero, Phillips 66, PBF Energy, and ExxonMobil, use reported diesel/gasoline cracks and refining margins as the trigger; avoid extrapolating analyst estimate revisions without evidence that product tightness is reaching realized results. Falsifier: crack spreads contract despite continued disruption.
• Treat First Solar as a policy-sensitive watch item rather than a tariff headline trade. Verify tariff implementation, achieved module prices, and guidance before adding exposure; a policy reversal or weaker pricing would undermine the thesis.
• Avoid paying for TeraWulf’s 2027 lease optionality as a near-term catalyst. Revisit only with verifiable lease progress and financing/capacity details; a delayed or uneconomic lease would invalidate the upside case.
• For an oil-shipping scarcity thesis, no mapped tanker owner is provided. Track charter rates and delivered crude differentials, but do not infer that Shell, COP, or refiners capture the reported freight premium.