[UncoveringTruths]

$this->bbcode_second_pass_quote('', 'T')he global order book for new very large crude carriers (VLCCs), which can each carry 2 million barrels of oil, would expand the fleet by 36 percent, according to London-based shipbroker Clarkson.

More than 80 percent of those ships will be delivered from 2008 onwards. Orders were spurred by above-average tanker rates over the last three years.

New ships mean that global tanker supply is likely to grow faster than demand, reducing profit for Sohmen and other tanker operators such as Frontline.

Hire rates for tankers plying the route from the Persian Gulf to Japan and China averaged 9.2 percent less in 2006 than the previous year, as measured by the industry's Worldscale standard, as the fleet expanded at a faster rate than oil shipments from Middle East producers.

[Eli]

It is perfectly acceptable to say that oil is produced. The level of engineering and effort that goes into oil production is enormous.

No one is saying that Saudi makes oil, if they did, then I would agree that that is a serious error.

pro·duce /v. prəˈdus, -ˈdyus; n. ˈprɒdus, -yus, ˈproʊdus, -dyus/ Pronunciation Key - Show Spelled Pronunciation[v. pruh-doos, -dyoos; n. prod-oos, -yoos, proh-doos, -dyoos] Pronunciation Key - Show IPA Pronunciation verb, -duced, -duc·ing, noun
–verb (used with object)
1. to bring into existence; give rise to; cause: to produce steam.
2. to bring into existence by intellectual or creative ability: to produce a great painting.
3. to make or manufacture: to produce automobiles for export.
4. to bring forth; give birth to; bear: to produce a litter of puppies.
5. to provide, furnish, or supply; yield: a mine producing silver.

Produce does not equal make or manufacture.

[UncoveringTruths]

Eli,

Oil companies do not produce oil and to insinuate such is part of the problem why we can't get it through the thick heads of some laymen folks that oil is a finite resource which is extracted from the Earth. IMO it is a better term than produce.

If they figure a way to turn shale oil into oil efficiently I would call that production. Tar sands could be called production but crude oil resources must be extracted.

ex·tract
–verb (used with object) 1. to get, pull, or draw out, usually with special effort, skill, or force:

[Twilight]

You can produce a rabbit from a hat the same way you can extract a rabbit from a hat. The words share the same meaning in some contexts.

[Zardoz]

$this->bbcode_second_pass_quote('UncoveringTruths', '[')b]Oil companies do not produce oil and to insinuate such is part of the problem why we can't get it through the thick heads of some laymen folks that oil is a finite resource which is extracted from the Earth. IMO it is a better term than produce.

[UncoveringTruths]

$this->bbcode_second_pass_quote('Zardoz', '')$this->bbcode_second_pass_quote('UncoveringTruths', '[')b]Oil companies do not produce oil and to insinuate such is part of the problem why we can't get it through the thick heads of some laymen folks that oil is a finite resource which is extracted from the Earth. IMO it is a better term than produce.

[Eli]

Listen it is important they we resolve this issue with PO breathing down our neck.

I agree that both terms are accurate. KSA produces oil in the same way that a mining company produces silver. It is just complete wrong to think that KSA won't one day be played out just like a silver mine would.

It is truly important that we resolve this issue, we might as well work on trying to sort this out because we have snow balls chance of finding a solution to PO.

back on topic.

It is interesting that the article felt to the need to mention that there was no need for the tankers because of less demand from Asian refiners. Yeah, that was the cause, was that really that large of a part of the reason for the tanker use slow down?

I am betting it was 99.9% the fact that KSA and OPEC kept cutting their Asian deliveries and .1% that Asian refiners didn't want the oil.

[Twilight]

The two terms are synonymous in this case. If one is preferable to another, it is for political reasons. If people subconsciously imbue the word with their preferred meaning, that's their weakness, their disadvantage and their eventual loss. I am not going to say that one usage is invalid because too many people use it to make or justify a false assumption. That's one step too close to being a lawyer.

Anyway, back to tankers.

They are being built in such huge numbers, that the shipyards of China are having to supplement dry docks with huge barges. On the other hand, they are being retired in large numbers too, the bans on single-hulled designs effectively meant everyone needed to go out and buy a new fleet in order to keep shipping to the US and EU.

How long the boom can continue is anyone's guess, but I think peak tanker market will follow peak OPEC by a time delay at least equal to the length of the order books. Thereafter, new build will probably be lower than replacement rate.

I don't think the tanker industry has long-term growth prospects, if you combine the likelyhood of OPEC seeing steep production declines combined with the Export Land effect, tankers are unlikely to remain a growth industry for long.

[UncoveringTruths]

Yes Twilight,

The only reason that I suggest that the PO community use the term extraction is because the term "production" may be used by some folks in the PO naysayer’s debate camp to sway the laymen by saying "look oil is produced". I know we know differently here but "Oil Production" is a confusing term for the laymen. Humans extract the Earth's resources and use them to produce everything around us they don't produce resources they produce byproducts from energy and the Earth's resources.

IMO Peak oil is all about maximum oil extraction and maximum flow rates when you reach that maximum it is PO. The Tanker issue could easily be considered a canary in the mineshaft showing that the max flow rates are decreasing with less Tanker demand but we wait OPEC's action this fall to determine if we have reached the max flow rate in May 2005 or what we call Peak Oil.

[TheDude]

That's an interesting notion, UncoveringTruths. It's comparable to the efforts of some to persistently refer to the Occupation of Iraq, instead of the War. Unfortunately I hear that on the radio where the audience is larger than the PO discussions online by magnitudes, and it makes not a bit of difference as far as I can tell.

Can tankers be refitted to serve as standard shipping vessels?

[UncoveringTruths]

$this->bbcode_second_pass_quote('TheDude', '
')
Can tankers be refitted to serve as standard shipping vessels?

[Twilight]

$this->bbcode_second_pass_quote('TheDude', 'C')an tankers be refitted to serve as standard shipping vessels?

[strider3700]

They also suffer from serious corrosion due to the things that like to eat ships living in the oil. They're better off scrapped then retasked

[Mechler]

$this->bbcode_second_pass_quote('UncoveringTruths', '
')I have been following Frontline (FRO) because I helped a buddy make a trade of $50k into this stock. I warned him that if PO hit the headlines or if Oil exports declined he should move out of this stock. He was lured by the lucrative dividends this stock is paying out. I guess I’ll break the bad news to him this afternoon. He actually has made about 12k since the investment. Time to bail!

[Judgie]

$this->bbcode_second_pass_quote('Twilight', '')$this->bbcode_second_pass_quote('TheDude', 'C')an tankers be refitted to serve as standard shipping vessels?

[OilIsMastery]

Dearest Professor Pup,

Wouldn't the high capital expenditure necessary to construct a new tanker create a barrier to entry moat that's good for Frontline and their competitors?

[aahala]

I was wondering what impact this rise or expected rise has
on the price of a gallon of gas in the US.

Doesn't appear to have much effect. If the cost was $65,000
earlier and now $70,000, then the increase per gallon is
less than a penny.

[Tyler_JC]

Short term increases in demand for oil infrastructure merely lead to price increase because there is a large time gap between the trigger for new supply production and actual supply available on the market.

Long term increases in demand for oil infrastructure lead to an increase in supply and eventually a lowering of the price.

My guess is that the production of new oil rigs, tankers, etc. is increasing to match the higher prices/demand.

[Mechler]

$this->bbcode_second_pass_quote('OilIsMastery', 'P')rofessor Pup,

Wouldn't the high capital expenditure necessary to contruct a new tanker create a barrier to entry moat that's good for Frontline and their competitors?

[JohnDenver]

Not sure what to make of this, but thought I would pass it on. With oil prices rising at $5 a week, it definitely makes financial sense to slow down your tanker, or put it in park for a while:

$this->bbcode_second_pass_quote('', 'W')here Are All the Tankers?

For a few weeks now, observers have noticed that Iran is leasing tankers and storing oil in them. At about $140,000 a week or so, that is expensive storage. At first, conspiracy theorists were wondering if they were preparing for some kind of war or attack. But more conventionally, it may be they are having problems selling their oil. Their oil is not very high-quality, and there are only a few places that can take it and refine it. India, China, and the US are among the countries with refineries that can take Iranian oil. (And yes, George Friedman of Stratfor tells me some of it does end up in the US from time to time.)

India's refiners are telling Iran they no longer want their oil, preferring the higher-quality oil that is readily available in the area. So Iran has to decide whether to send it to China or "repackage" it so that it can end up in the US, while they try to get refiners in India to change their minds. Thus, they are leasing tankers to store the oil they are pumping.

I called George about six this evening and asked him about the Iranian situation, as that is a lot of oil that could come on the market at some point, as well as a possible reason that oil supplies are down. George has analysts on top of this situation.

He told me, "John, it's more interesting than that. It is not just Iran. Today we started checking on how many tankers Iran had, and soon discovered that there is a serious tanker shortage. Lease prices have soared in the past few weeks. It is clear there are a lot of speculators betting that oil is going to rise to $150 or so and are willing to pay very high prices for keeping the oil on the seas waiting for higher prices. It is a speculative boom."

He then told me about flying into New York in the early '80s. Outside the harbor were 30 or so tankers just sitting, waiting for prices to continue to increase as they had been doing for some time. When they did not, they all tried to get into the harbor at the same time, and of course they couldn't. It was the top of the market. Prices dropped, and the owners of the oil had to go to the futures market to hedge what they could. I had heard that story, but George saw it with his own eyes.

Almost everyone (except the stock market) is convinced oil is going higher in the near term. As I noted above, this week's rally was partially due to short covering by large institutions and companies which had sold production far into the future at much lower prices. They finally threw in the towel and took off their hedges.