🛢️ Oil Trading — Freight & Logistics

FREIGHT, PIPELINES & STORAGE

How logistics costs affect your trade decision and commercial margin — every number derived from scratch
L-01Overview
L-02Tanker Freight
L-03Pipeline
L-04Storage Economics
L-05Trade Decision
Logistics is the hidden cost that kills trades.
A trader can buy crude at the right diff, hedge perfectly, and still lose money — because moving that barrel from point A to point B costs more than expected. Freight, pipeline tariffs, and storage fees eat directly into your commercial margin.
The three logistics components — and how each affects your margin
Tanker Freight
Move by sea
Charter a vessel to carry crude from loading port to discharge port. Cost quoted in Worldscale (WS) rates. Highly volatile — moves with global tanker supply/demand.
Typical: $1–$5/bbl
Pipeline
Move by pipe
Fixed tariff per barrel to move crude through a pipeline. Cheaper and more predictable than tankers. But you must nominate (book space) in advance — missing deadline = no space.
Typical: $0.30–$2/bbl
Storage
Park barrels
Rent a tank to hold crude temporarily. Costs money every day. Only profitable if the forward curve is in contango — future price higher than spot. Otherwise you're bleeding capital.
Typical: $0.20–$0.60/bbl/month
How logistics fits into your commercial margin
The golden rule: always calculate your full logistics cost BEFORE agreeing a trade. The minimum differential you must sell at = buy diff + all logistics costs per barrel. If you can't find a buyer above that level — don't do the trade.
The decision every trader makes — for every cargo
QuestionAnswerDecision
Where is the barrel now?Cushing, OklahomaPipeline or truck to Gulf Coast
Where does buyer want it?Rotterdam, NetherlandsPipeline to Houston + VLCC tanker
What is freight cost?$2.10/bbl all-inDeduct from margin calculation
Can I store instead?Contango = $1.20/monthCost $0.40/month → profit $0.80/month
What's my break-even sell diff?Buy diff + all costsWon't trade below this level
Tanker freight is the cost of chartering a ship to physically move crude oil across the ocean.
When you buy crude in the Middle East and sell it to a refinery in Rotterdam, you need a Very Large Crude Carrier (VLCC). The cost of that ship for that voyage is your freight cost — and it comes directly off your margin.
How a tanker trade works — step by step
🏭
Ras Tanura, Saudi
🏭
Rotterdam, NL
🚢
Tanker typeSize (barrels)Route exampleTypical cost$/bbl approx
VLCC2,000,000 bblsMiddle East → Europe/Asia$3–6M per voyage$1.50–$3.00
Suezmax1,000,000 bblsWest Africa → Europe$1.5–3M per voyage$1.50–$3.00
Aframax600,000 bblsNorth Sea → Med$0.8–1.5M per voyage$1.30–$2.50
Panamax400,000 bblsAmericas → Europe$0.5–1M per voyage$1.25–$2.50
Voyage time matters
25–45 days
Middle East to Europe takes ~25 days. During this time you own the oil but can't sell it — capital tied up, plus daily capital charge running.
Demurrage risk
$50k–$150k/day
If the ship has to wait at port because the terminal isn't ready, you pay demurrage (waiting penalty). This can wipe out margin on a bad day.
Bunker fuel cost
$0.20–$0.50/bbl
Ship burns fuel (bunkers). High oil prices = expensive bunkers = higher freight costs. This creates a self-reinforcing effect when oil prices spike.
Worldscale (WS) is the global freight rate system.
WS 100 = the "flat rate" — a theoretical standard cost for each route published annually by the Worldscale Association. Actual market rates are quoted as a percentage of WS 100. WS 80 = 80% of the flat rate. WS 150 = 150% (expensive market).
How WS converts to dollars per barrel
Route flat rate (WS 100)$18.50 / metric tonne(published by Worldscale Association for this route)
×Market rate (WS points)WS 85(current market = 85% of flat rate)
=Actual rate$18.50 × 0.85 = $15.73 / mt
÷Barrel conversion (1 mt = 7.3 bbls)÷ 7.3
Freight cost = $15.73 ÷ 7.3 = $2.15 / bbl
Why WS rates are so volatile: tanker rates move with the balance of tanker supply vs cargo demand. When OPEC cuts production, fewer cargoes need ships — rates collapse to WS 40–50. When demand surges or geopolitical events divert ships, rates spike to WS 200+. A trader who locked in a voyage at WS 100 when market is now WS 60 just paid 67% more than the market.
WS rate market conditions
WS 40–60 (weak market)
~$1.10/bbl
WS 80–100 (normal)
~$2.15/bbl
WS 120–150 (tight)
~$3.20/bbl
WS 200+ (very tight)
~$5.00+/bbl
Build your own tanker voyage economics. Every number derives from your inputs — no assumptions.
Cargo size (kbbls)
1,000 kbbls
WS flat rate ($/mt)
$18.50/mt
Market WS rate (points)
WS 85
Voyage days
25 days
Demurrage risk (days)
1.0 days
Demurrage rate ($/day)
$75,000/day
Actual freight rate$18.50 × 85% = $15.73/mt
÷Convert to per barrel$15.73 ÷ 7.3 = $2.15/bbl
Total freight cost1,000,000 × $2.15 = $2,150,000
+Demurrage risk1.0 days × $75,000 = $75,000
All-in freight cost = $2,225,000 → $2.23/bbl
Capital cost during voyage (25 days): add to your cost calculation
Freight $/bbl
$2.15/bbl
Base voyage cost
Demurrage $/bbl
$0.08/bbl
Waiting risk cost
Total freight $/bbl
$2.23/bbl
All-in per barrel
Total voyage cost
$2,225,000
Full cargo cost
A pipeline moves crude oil overland through a fixed physical pipe — much cheaper and faster than a tanker, but you must book space in advance.
In the US, crude moves from the Permian Basin in Texas to Cushing, Oklahoma (the WTI hub) and then to Gulf Coast refineries, all by pipeline.
Pipeline vs tanker — side by side
Pipeline advantages
Cheaper + Predictable
✓ Fixed tariff — no market volatility
✓ Fast — days, not weeks
✓ No weather/demurrage risk
✓ Can move continuously (batch scheduling)
Pipeline constraints
Capacity + Nominations
✗ Must nominate by deadline (25th of prior month)
✗ If you miss nomination — no space for 30 days
✗ Fixed routes — can't redirect like a tanker
✗ Quality restrictions — can't mix grades freely
A typical pipeline flow — Permian to Gulf Coast
⛽
PERMIAN
Midland, TX
🔄
CUSHING
WTI Hub, OK
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HOUSTON
Gulf Coast, TX
🚢
EXPORT
Freeport/Corpus
SegmentDistanceTariff ($/bbl)Transit timeKey risk
Permian → Cushing600 miles$0.50–$0.803–5 daysNomination deadline
Cushing → Gulf Coast500 miles$0.40–$0.702–4 daysPipeline apportionment
Gulf Coast export terminal—$0.20–$0.401–2 daysBerth scheduling
Total pipeline$1.10–$1.90/bbl6–11 days
Nominations = booking your space in the pipeline for next month.
Pipeline operators publish a nomination deadline — typically the 25th of each month for the following month's flows. Miss it and you have no space. This is one of the most operationally critical deadlines in physical trading.
The nomination cycle — what happens each month
25th Mar
Nomination deadline for April flows
You tell the pipeline operator: "I want to move 500,000 bbls from Cushing to Gulf Coast in April." If you miss this — no space in April.
1st Apr
Operator confirms (or apportions)
If pipeline is oversubscribed, operator apportions space equally. You might only get 80% of what you nominated. This is called apportionment and it can strand barrels.
Apr 1–30
Barrels flow through pipeline
Your crude moves through the pipe in scheduled batches. You track it by injection volume vs. confirmed delivery.
30th Apr
Delivery confirmed — title transfers to buyer
Measurement at delivery point confirms volume. Any shortfall (line loss) is the pipeline's liability. Payment clock starts.
Apportionment is the nightmare scenario. You bought 1,000,000 barrels expecting full pipeline access. The operator apportions at 70% — you can only move 700,000 barrels. The other 300,000 sit in storage costing you $18k/day in capital charges while you scramble to find alternative transport.
Pipeline cost simulator — derive every dollar from your inputs.
Volume nominated (kbbls)
1,000 kbbls
Tariff segment 1 ($/bbl)
$0.65/bbl
Tariff segment 2 ($/bbl)
$0.55/bbl
Terminal/export fee ($/bbl)
$0.30/bbl
Apportionment % received
100%
Total tariff$0.65 + $0.55 + $0.30 = $1.50/bbl
Volume confirmed1,000,000 × 100% = 1,000,000 bbls
Stranded volume0 bbls (no apportionment)
Pipeline cost = 1,000,000 × $1.50 = $1,500,000
Total tariff/bbl
$1.50/bbl
Volume confirmed
1,000,000 bbls
Stranded barrels
0 bbls
Total pipeline cost
$1,500,000
Storage means renting a tank to hold crude oil when you don't want to sell it immediately.
You store oil when: (1) you can't find a buyer today, (2) the forward curve is in contango so future prices are higher, or (3) you are waiting for a better market. Every day in storage costs money.
Storage cost components — where the money goes
Cost componentTypical rateOn 1M bbls/monthWhy it exists
Tank rental fee$0.20–$0.40/bbl/month$200k–$400k/monthTank operator's margin for providing facility
Insurance$0.02–$0.05/bbl/month$20k–$50k/monthCoverage for fire, spill, contamination risk
Heating (heavy crude)$0.03–$0.08/bbl/month$30k–$80k/monthHeavy crude solidifies — must keep heated
Loss allowance0.05–0.15% per month~$40k/monthEvaporation, metering loss, tank bottom loss
Capital charge$18,230/day (8% rate)$546k/monthCost of company money tied up in inventory
Total storage cost~$0.80–$1.10/bbl/month~$836k–$1.1M/month
Tank fill level — visual
Empty tank
5% full
Losing money on fixed costs
Half full
50% full
Moderate cost efficiency
Full tank
95% full
Best cost per barrel
Overfill risk
100%
Safety risk — must sell fast
The contango storage trade: buy spot, store, sell forward.
When the market is in contango (future prices higher than spot), you can lock in a profit by buying cheap oil today, storing it, and simultaneously selling it forward at the higher future price. If the contango is wide enough to cover storage costs — it's a guaranteed profit.
The full calculation — does the contango cover costs?
Spot price today$80.00 / bbl
3-month forward price$83.50 / bbl
=Contango gain+$3.50 / bbl over 3 months
Tank rental (3 months)−$0.90 / bbl
Insurance + losses−$0.20 / bbl
Capital charge (90 days)−$1.64 / bbl($80 × 8% × 90/365)
Financing cost−$0.27 / bbl
Net storage profit = $3.50 − $3.01 = +$0.49 / bbl
On 1,000,000 barrels: +$490,000 locked-in profit for 3 months work
This is the famous "cash and carry" trade. When contango is steep (like during COVID-2020 when WTI went negative), traders filled every available tank and tanker with crude and locked in enormous profits. The trade is fully hedged — you buy physical AND simultaneously sell the forward swap — so flat price risk is zero. Pure logistics arbitrage.
When NOT to store: if the market is in backwardation (spot > forward), every day you store is a loss. You paid $83 for spot oil but can only sell forward at $81. Storage costs are on top. This is why in a backwardated market, physical traders move barrels as fast as possible — storing is suicide.
Storage economics simulator — does your contango trade make money?
Volume stored (kbbls)
1,000 kbbls
Spot price ($/bbl)
$80.00
Forward price ($/bbl)
$83.50
Storage period (months)
3 months
Tank rental ($/bbl/month)
$0.30/bbl/mo
Capital hurdle rate (% p.a.)
8%
Contango gain$83.50 − $80.00 = +$3.50/bbl
−Tank rental$0.30 × 3 months = $0.90/bbl
−Capital charge$80.00 × 8% × 90/365 = $1.58/bbl
−Insurance + loss$0.07/bbl × 3 months = $0.21/bbl
Net storage P&L = +$3.50 − $2.69 = +$0.81/bbl
On 1,000,000 bbls: +$810,000 total
Contango gain
+$3.50/bbl
Total storage cost
$2.69/bbl
Net profit/bbl
+$0.81/bbl
Total P&L
+$810,000
Every physical trade comes down to one decision: can I move this barrel profitably?
Before you buy crude, you must calculate the full cost chain — from purchase point to delivery point. Only if the margin exceeds all costs should you do the trade.
Choose your route — click to select
🚰
Pipeline only
Permian → Cushing → Gulf Coast. Fastest, cheapest. Requires 25th month nomination.
$1.50/bbl total tariff
🚢
Pipeline + Tanker
Pipeline to Gulf Coast, then VLCC to Rotterdam. International delivery. 30+ day journey.
$3.65/bbl total
🏦
Store + Sell later
Tank in Cushing. Wait for better price or contango trade. Capital charge ticking daily.
$0.80/bbl/month
Pipeline only selected. Best for domestic US refinery delivery. Cheapest at $1.50/bbl. You need a US refinery buyer at Diff +$2.70 or above to make money (buy diff $1.20 + pipeline $1.50).
Route comparison — same cargo, three options
RouteFreight costTransit timeMin sell diff neededBest when
🚰 Pipeline (domestic)$1.50/bbl6–11 days+$2.70/bblUS refinery has demand
🚢 Pipeline + Tanker (export)$3.65/bbl30–40 days+$4.85/bblOverseas diff premium high
🏦 Store 1 month$0.80/bbl30 days waitContango > $0.80/bblMarket in steep contango
🏦 Store 3 months$2.40/bbl90 days waitContango > $2.40/bblDeep contango market
How a trader chooses: check where the refinery diff premiums are globally. If Houston refineries are paying +$2.80 — pipeline is profitable ($2.80 − $2.70 = $0.10/bbl margin). If Rotterdam refineries are paying +$5.50 — the export route is better ($5.50 − $4.85 = $0.65/bbl margin). Always go where the margin is highest.
Full commercial margin build — logistics included. Set every input, see the complete P&L waterfall with no hidden numbers.
Volume (kbbls)
1,000 kbbls
Buy differential ($/bbl)
+$1.20/bbl
Sell differential ($/bbl)
+$4.85/bbl
Pipeline cost ($/bbl)
$1.50/bbl
Freight cost ($/bbl)
$2.15/bbl
Storage cost ($/bbl)
$0.00/bbl
Other costs ($/bbl)
$0.20/bbl
Full margin waterfall
Gross diff marginsell $4.85 − buy $1.20 = +$3.65/bbl
−Total logistics$1.50 + $2.15 + $0.00 + $0.20 = $3.85/bbl
Net margin = +$3.65 − $3.85 = −$0.20/bbl
On 1,000,000 bbls → Total net = −$200,000
Break-even sell diff needed = +$5.05/bbl
Gross diff margin
+$3.65/bbl
Total logistics
$3.85/bbl
Net $/bbl
−$0.20/bbl
Total P&L
−$200,000