Oil Industry
Oil industry is one of the largest industries in the world. Oil is a commodity that has the highest demand globally. oil has been in use over very many years ago. It was basically used to keep fires ablaze, as medicine, waterproofing boats, and baskets and is also used in paints (Langenkamp 2006). Oil is extracted and then refined which is known as the upstream. There is also the downstream that is the delievry of oil that is used for heat. Oil demand rate became higher than the supply rate. It has improved the economy of many countries. It has also offered jobs to the people who has skills for operating the drilling equipments. When the demand of oil rises the economy of the country also goes up because oil is an essential input in many industries.
The demand and the supply of oil is determined by the politics and the economy of the country (Falola & Genova 2007). If the country is in a recession the supply and the demand rates goes down. the companies do not manufacture much products thus reducing the supply rate. The consumers, on the other hand, do not use the oil much hence the decline of the demand. The economy of the country at this time goes down. The price of oil is determined by a variety of factors that later affects the demand and the supply of it. Some of these factors that affect the demand of oil is the prices of the substitutes. If these substitutes are sold at a cheaper price then many people will turn their back on oil and use the substitutes provided. Some of these substitutes are gases. The change of the climate is a major factor that affects the demand of oil. During winter the demand is so high for it is needed to fuel the household heating systems and also to warm the workimg place. the supply is also determined by the Organization of Petroleum Exporting Countries (Martin 2006). They holds a meeting where they discuss the supply of oil in the coming months. Rig utilization rate is another determinant of the supply of oil. The rigs used by a company should be of high quality because it increases the utilization rate hence high revenue growth.
There is intense competition among the oil companies. The new entrants acts as a threat to the existing companies though there are some barriers to their entrance. The supliers of oil has power over the smaller drlling and support companies. Buyers also have some powers of demanding for lower price since oil is the same one in all the companies. they also need a better contract term so that they can continue using the products. Most companies are threatened by the oil substitutes. Some of these substitutes are gas, coal, solar and wind power, hydroelectricity and nuclear energy. Companies that offer specialized services about the drilling tools have higher chances of withstanding the threat of the substitutes. These substitutes lower the demand of oil. a company may also be highly affected by the rivals who are so much competing with it. there are a variety of oil companies in the world and eachrefinary produces what it has been designed for.
Oil industry are monopolized by some large corporations. some of these corporations include ExxonMobil, British Petroleum and ChevronTexaco. They are the most wealthy corporations in the world. ExxonMobil can makes massive profits alone where they continues increasing their profits so that they maintain ther position in society. The wealth of the oil company gives the monopolies a great power in the society. The monopolies massive profits leads to destructions of whichever kind. It can also lead to a miserable social life. The oil monopolies have lead to the layoffs of workers every year in the oil industries. These oil companies have also caused harm to the environment. There is great pollution of the environment through the emissions made by the vehicles. the increase of oil and gases also affects people very much. The government was trying to take effective measures to abusive monopolies where these monopolies tried their best to protect the government’s intervention.
oil prices behaves like any other comodity in that they might rise or drop. The prices variation depends with the demand and the supply of the comodity. Sometimes the demand of oil declines with the increase of oil prices. Curently due to high consumption of oil the demand still remains high even if the prices are high. high consumption of oil is brought by the rapid increase in urbanization, the development of countries, increase of industries and high living standards. All these require
The prices of oil
too much use of oil. Mostly increase in oil prices is brought by the slow down in oil supply growth. The decline in oil production leads to lower supply hence the increase of oil prices.
The prices of gasoline an oil have gone high due to their demand and the supply (Lax 2008). the sharp rise and rapid profit growth may lead to economic collapse. This might cause suffering to very many people especially the workers. For a better sale of these comodities the prices have to be regulated to a lower rate so that many can afford leading to high demand. There should also a good supply of the product so that the prices cannot go up. The increase in the prices benefits only the monopolies. The prices of gasoline has gone up which are paid on a per trip basis. some believe that fixed and variale costs of gases are improtant because they reduce traffic congetion. The only way to reduce traffic congestion is by increasing the variable costs and reducing the fixed costs. This might highly affect the demand of gasoline.
The changes in the market equilibrium is determined by the demand and the supply of the commodity. The increase in demand comes as a result of consumers’ demand on a comodity at a given price. the increase of demand results to the increase of the equilibrium. The quantity on the other hand decrease with the decrease of the demand. the increase in the price of the commodity leads to the decrease of the equilibrium. When a company supplies a lesser quantity at a given price the equilibrium price increases.
The supply and demand oil responds to variuos factors. the most important thing that one should note is how the quantity demanded and the one supplied will change if the price changes (Niblock 2007). The changes that occur after the elasticity of demand and elasticity of supply should be keenly noted. the elasticity is calculated dividing the percentage change in quantity by the percentage change in price. The elasticity is not affected by the change in the unit of measurement or currency because the changes are in percentage. The elasticity is got when there is a great change in quantity demanded or supplied with less changes in the price. the vice versa is termed as inelastic. Elasticity is also considered in the income elasticity of demand and cross elasticity of demand. The cross elasticity of demand entails the relative changes in the demand when considering substitute goods. A consumer may opt to purchase a sustitute goods if the prices of one good goes up.
There are no competition in the oil industry because a company produces what it has been designed for. the products are the same. The competition that come acroos is the competition of prices. Each company has it’s own supply cost. the supply cost determines the quantity demand of the commodity. The new companies that that are entering the market may scare away the existing companies because they might come up with a lower price hence a higher demand. currently there are so many barriers for the new entries reducing the competition. The FTC law preserves competition in the market place and also protects the consumers. This law also protects the industry because a slight increase in price may damage the economy. Lack of intense competition causes harm to the consumer due to the price rise of the comodity.
In conclusion oil industry is one of the largest industry in the world. Oil and gasoline are the fat moving commodities due to a high demand (Lax 2008). Oil is well known for lighting, as a medicine, for waterproofing boats and baskets and also used in paints. The supply of oil is becomong lower than the demand because of high consumption. During recession the oil demand and supply goes down. There are less products manufactured at this time which leads to less supply. Consumers also consume less resulting to less demand. the companies make less profits during the recession period and the economy of the country goes down. The demand and supply of oil is determined by a variety of factors. The OPEC determines the supply of oil. Rig utilization is also a strong determinant of the supply.
The oil industry is monopolized by enormous corporations such as the ExxonMobil. These corporations are making very high profits. They are the most wealthy monopolies. Their wealth makes them to have great power in society. These are abusive monopolies. The demand of oil remains high due to high consumption of it. Oil prices increases by the slow supply growth rate.
market equilibrium is then determined by the demand and the supply of oil. The increase of the equilibrium comes as a result of the increase of the demand of the commodity by the consumers at a given price. The elasticity depends on the changes of the supply and demand after the changes of the prices. The supply and the demand may change when the prices change. The elasticity is affected by the changes of measurement or currency because it is in percentage. The FTC law preserves competition in the market place and also protects the consumers. this law also protects the industry because a slight increase in price may damage the economy. The oil industry is the best industry one can invest in because of it’s high profit-making. Substitute products also benefits the industry.
References
Falola T. & Genova A. (2007) The Politics of The Global Oil Industry, California, Greenwood Publishing.Lax L. H. (2008)
Langenkamp R. D. (2006) Handbook of Oil Industry, New York, PennWell Books
Lax L. H. (2008) Oil and Gas Industry, New York, Springer.
Martin L. (2006) OPEC and International Oil Industry, New York, Oxford University Press.
Niblock T. (2007) Oil Industry, Texas, Routledge
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