The Price Nobody Pays
The Price Nobody Pays
The Price Nobody Pays
In mid-October a barrel of Brent crude for future delivery cost about $107, and a barrel of North Sea crude ready to load cost about $134. The first number is the price of oil as most people hear it. It runs along the bottom of financial television and leads the news about the war with Iran, and it has risen 13% since the start of September. The second number has risen 43% over the same weeks. The International Energy Agency reported both in its October Oil Market Report, published on October 14, and it added that some North Sea grades were trading as high as $160.
The two numbers do not describe identical oil. Brent futures are contracts traded on an exchange for delivery in a later month. Dated Brent prices physical cargoes of North Sea crude that load in the next few weeks, and the two differ in timing, grade and terms. But the gap between them is the distance between the benchmark most people quote and the price at which crude is actually changing hands, and in mid-October that distance was $27.
The diesel market shows the shortage in another way. The IEA reports steepening backwardation there, which means fuel for delivery now costs more than fuel for delivery later. Backwardation rewards anyone who holds fuel for selling it today rather than storing it, and stocks have fallen. By the end of September global observed oil stocks stood 509 million barrels below their level before the war, and stocks held on land were at their lowest since at least 2016. Part of the shortage has been met out of reserves. A reserve can be spent only once, and the IEA warns that stocks are still falling.
That $27 is the first gap between the price in the headline and the price at the pump, and there are more. The money in those gaps does two different things. Some of it pays for real costs that the war has added. Some of it is income for whoever holds something scarce.
The war has partly reopened the oil routes. In September crude exports from the Gulf rose by 4.4 million barrels a day to 13.9 million, more than three-quarters of their level before the war. Crude is moving again, but it still has to cross the sea, and in September the cost of crossing climbed to records. On September 11 an attack hit the Saudi East-West Pipeline, which carries crude across Saudi Arabia to the Red Sea and away from the Strait of Hormuz. The IEA describes the rise in freight rates as exponential, and in October Houthi attacks in the region increased.
Freight does not appear in the futures price. It appears in the delivered price, which is what a refinery in Europe or Asia pays when the cargo arrives. Part of the rise in freight is cost, because moving oil through a war costs more. Part of it is income for whoever owns a tanker at a time when tankers are scarce. The IEA's figures do not separate the two. This is the second gap.
A refinery buys crude and sells fuel, and it earns the difference. The fuel that matters most in this war is diesel. Before the war the Middle East exported 4.7 million barrels a day of refined products. In September it exported 1.9 million. Crude has come back and refined products have not, and Russian diesel exports have fallen as Ukrainian drones damage Russian refineries. In mid-September wholesale diesel passed $200 a barrel in Singapore and set records of about $220 in Europe and the United States. It has eased since, but the IEA reports that diesel still costs nearly twice as much as crude.
That gap should make refining very profitable, and in the United States it has. The IEA writes that "discounted feedstocks propelled US margins to new highs." Its summary does not explain the discount, but Reuters reported on October 12 that heavy crude was piling up in the Americas because soaring freight had choked off exports, while US refiners were already running close to their limits. Canadian, Colombian and Ecuadorian heavy grades had fallen more than $10 a barrel, to their lowest in six weeks. Crude that cannot leave the Americas has to be sold to the refineries that can reach it and are built to process heavy oil. That income is rent. It comes from where a refinery sits and how it was built, not from anything it did this year.
In Europe the gap moved. The diesel crack is the difference between the price of diesel and the price of crude. It shows what diesel earns over crude, not what a refinery earns on everything it makes, and the IEA reports heavily negative cracks on fuel oil and naphtha. For European refiners the diesel crack reached $100 a barrel, and by early October it had fallen to about $60. Diesel did not become cheap. Some of the fall reflects diesel easing from its September peak. The rest came as crude became more expensive to buy and to deliver, and that money went instead to the seller of the cargo and to freight. The IEA reports the same squeeze on refiners in Asia.
So a refiner on the US Gulf Coast and a refiner in Europe sell into the same diesel market, and this autumn one has earned record margins while the other has watched its margin shrink. The shortage set the size of the gap. Geography and ownership decided who collected it, and within a few weeks they decided it again.
At the end of the chain the gaps add up. The IEA reports that retail diesel prices have risen to records in most major economies, and that the high prices are already pushing up what goods cost and weighing on real incomes. Diesel is bought for work, and the people who buy it mostly cannot stop. The agency notes that diesel demand has held up partly because governments have acted to soften prices for consumers, and on October 2 the G7 leaders promised to speed the release of emergency diesel stocks. Subsidies move part of the gap from the driver to the taxpayer. Stock releases narrow it for now, but they draw again on the reserves the war has already spent down.
The IEA expects the diesel market to stay tight well into 2027. If supply from the Middle East does not return, the agency says, the market may need further cuts in demand, and those cuts will carry heavy economic costs. That means the last gap closes when some people buy less diesel because they cannot pay for more. Nobody at that end of the chain collects anything.
The IEA's figures show who has bought less so far. Gasoil is the family of fuels that includes diesel and heating oil. In the five months to July, OECD use of gasoil outside transport fell 8% from a year earlier, while diesel for transport fell by only 2%. Buyers who could postpone did, and the trucks kept running. That deferral has a limit. The IEA notes that heating tanks must be filled before the Northern Hemisphere winter, so buyers who postponed heating oil in summer will have to buy it anyway. Even so, the agency expects global gasoil demand to fall faster in the fourth quarter, by 1 million barrels a day from a year earlier.
The $107 is a real price, but it is the price of a contract. It is quoted on an exchange for oil in a later month, and a trader who buys it neither pays $107 that day nor necessarily takes any oil. Cargoes are priced against other benchmarks, adjusted for grade, with freight on top. No truck is filled at $107, and no farmer's fuel bill is set by it. In that sense it is the price nobody pays.
Between $107 and the pump the war has added costs, and it has handed income to whoever held crude, tankers or refineries in the right place. Both show up in someone's accounts, and both change hands as the war moves. Higher prices do one more thing, and it shows up nowhere. It is the load not hauled and the job not done because diesel cost too much, and no one in the chain collects it.
Sources
IEA, Oil Market Report – October 2026, published 14 October 2026
Reuters, "Americas have glut of heavy oil due to freight squeeze; Asia, Europe scramble for barrels", 12 October 2026