Oil Business - Advantages and Disadvantages - Essay Example

One industry that is grossly affected by the macro economy is the oil and gas distribution industry. The industry's main task is to transport and distribute the natural resources that our country needs to run on. The industry is responsible for transporting, refining, and distributing all of the natural gas and oil that is needed for every day usage by customer and business needs. Typically, the entire oil business is divided into three main parts which are the upstream, midstream, and downstream sector. The upstream sector is concerned with the location and extraction of oil from various parts of the world while the midstream is concerned with the processing of extracted oil to marketable products as well as the transportation of such products. Both the upstream and the midstream sectors are concentrated only in certain parts of the world such as Russia or the Middle East while the distribution industry which is part of the downstream sector is spread throughout the world (Gary & Handwerk, 1994). Therefore, any changes in the global market of oil can either favorable or adversely affect the distribution industry significantly. The unpredictability of the global market can also lead to many changes inside of the distribution industry, and the rising cost of fuel has only put strain on the already straining oil distribution industry. One of the industry's strengths is that it is among the first in line of industries affected by oil prices and therefore it can suffer minimally as compared to other industries when it comes to changes in oil prices. Because it is the first hit by the changes, it is also the first that can adapt, and the first to be able to quickly overcome the changes to try to lessen losses based on the change in oil prices. Where other industries are affected conversely through the chain of order and sometimes have little room to do anything about the price of oil, the gas distribution is hit first and therefore can adapt most quickly with the other industries adapting around it. When less oil is mined and processed in the international market, independent distributors would have to compete to obtain what is available. This sort of competition can drive smaller distributors out of business. And for those smaller distributors this can cause problems, and may at first look like an outright negative effect of gas prices, and a negative effect of the whole of the industry. But this negative opportunity for the smaller firms soon opens up a larger one for the bigger firms, which can then flex their economic muscle a little bit. It is this versatility and adaptability that helps the oil distribution industry to survive at hard times, when most other industries would fold upon themselves and crumble. However, it also provides the perfect opportunity for larger firms to establish their dominance in the market further by releasing old stock at more competitive prices. This would allow them to use their control over the market to help keep some of the small firms in business, but unfortunately all of them may not be cut out to survive. Some small firms may have to fold, but with the larger industries helping out those little ones that can stay on their feet, the industry as a whole is better off and able to survive through the harshest of oil times. We can see that even though fluctuations in oil prices can significantly affect individual distributors, and that these fluctuations often cause major problems in other industries. However, the oil distribution industry itself can roll with the blows and simply let the strongest companies survive. This is the perfect example of economic survival of the fittest, and shows that the oil industry is able to adapt itself to even the toughest blows that may be coming around the corner. With that being said, the industry is not perfect, and is not without its own share of weaknesses and problems that it has a hard time coping with. Just like any industry, the gas distribution industry is not without its flaws, and has its own share of problems that could one day topple it. One of the industry's main weaknesses is that it is highly reliant to one raw material. Without that one raw material, the industry as a whole would completely fail and it would cease to exist entirely. Without the material, there would be no industry as we know it. Another threat that can be seen in this regard is the public's growing concerns about global warming and the continuous developments for alternative sources of energy. Obviously, the enormous assets of oil distributing firms are tied directly towards both the global oil supply and public demand for oil. Should the global market finally run out of oil or should the public begin to support some new alternative means of energy, it would cause the downfall of the industry. This is why many oil and gas companies have been known to buy up patents for other types of fuel and simply hold on to t hem, so as the public need for gas is still there. For the time being this may work, but one day we are going to run out of oil and the industry is going to need to find another raw material to survive off of. There are several other trends that are also currently being observed in this industry. The first is the closing of several smaller distribution chains in many countries all over the world. Since the continuous rise of the price of oil per barrel in the global market, many distributors have found that they could no longer keep up and have surrendered with the competition. In connection to this trend is another trend seen of bigger distributors buying out smaller distributors' assets in order to grow even larger (Roberts, 2006). If this trend persists, it is possible that these bigger companies would be able to create virtual monopolies within the countries where they are based. Monopolies always spell out trouble for the consumers, and a vast monopoly of oil would only lead to further public distrust in companies, and further problems for the industry as a whole. Another persisting trend in the last few years is the rise of public concern towards the harms of oil products to the environment, leading to a growing demand for bio-fuel products. This emergence of eco-friendly products has led to much distrust of oil companies, as well as the processes that go into creation of oil. Even the emissions from oil are being attacked almost every day by this new group of activists. Essentially, bio-fuel is a variation of petroleum products that are further treated to be more environmentally friendly (Roberts, 2006). The demand for such products, although still hardly surpassing the demand for regular petroleum products, is increasing steadily and making distributors consider carrying more of it despite its higher price (Roberts, 2006). It is very likely that we would begin to see this trend of eco-friendly gas to continue, and this could also spell out trouble for the nature unfriendly oil dependent distribution industry. If movements of global demand for more environmentally friendly fuel do indeed continue, it would present an opportunity for many oil distributing firms to jump on the evolving market first, which could in turn give them a chance to revolve in the shifting tides of the industry. Read More