The Oil Business - Essay Example

Commodity: Oil In developing an understanding of the oil sector, one needs to understand the different forces that drive the sector and the impact that each brings to it. The oil business has grown from a simple exploration experiment from a chemist that ended up with paraffin for a small lamp to barrels of oil discovered that contribute massively to the product and GDP of the world economy. Interest in the black gold as commonly referred to in the public bases marks interest in the economic gains that the world makes over the years that have helped many companies offer reasonable returns to their shareholders. A company like ExxonMobil is marked by a number of oil activities as one of their major products. Understanding the company in details helps one understand the events that affect the oil business. It is through the quest to understand the company more than one finds an understanding into the oil business. The report explains the different trends that have marked the oil business for years and the reactions that Exxon Mobil has put up to fight the effects of these changes that affect business and economies. History and Background of Your Company and Commodity With over 125 years in business, the Exxon Mobil has grown from a regional marketer that handled kerosene sales and distribution in the U.S to a well recognized publicly trading company dealing in petrochemical enterprise. With a well-planned development strategy, the company has grown to cover operations in the world with brand names such as Exxon, Mobil and Esso (Learn about ExxonMobil brands and products, n.d.). Modern transportation, power needs, petrochemical building and lubricants as one of the major business in relation to consumer goods that the company handles. With the growing need for energy that the world is growing to embrace, the company has a great future in the business. The company’s products have taken root in the United States and other countries worldwide. With presence in all corners of the world, North America with Canada, Caribbean, Mexico and the United States are covered. South America, Europe, Middle East to North Africa, Sub-Saharan Africa and the Asia Pacific. The company applies applied sciences and heavy research into coming up with innovative products for the petroleum products and the refinery business. With revenues of over 420 billion dollars, the company has grown to control the industry it trades in as per 2013. The company has an asset platform of over 346 billion dollars as of 2013; the business grows at a faster rate and has a stable cash flow that can sustain the business for a longer time. With over 80000 employees, the company has ensured a proper selection of skilled work force keeps it ahead of the competition. Good remuneration packages and motivational aspects rewarded to employees keeps employees dedicated to their roles in the organization. The company registered a growth in human resource at a level of over 1% and with a market capitalization of over 399.39 Billion, the company continues to rule the industry and prove a threat to competition. As the largest integrated oil company in the world, the company maintains a good standard of the product and ensures that all its employees and customers achieve satisfaction. They maintain a standard that each customer feels more attached to at all time. The company produces over 6.7 million barrels of oil per day with their over 37 refineries around the world in more than 20 countries and over 100 countries through which it supplies with over 26000 gas stations. Some of the greatest tools employed by the company in keeping their standards met is the use of research as a way of developing and keeping their product market worth and exploration processes continuous. With over $10 billion spent for the last 15 years on research, the company has grown to advance its product and ensure continuous market presence. The research focused into refining processes and petrochemical production as per Singapore alone with over $125 billion for the last 5 years alone. The company depends on oil as one of its major products and dedication of resources into the research aspects of the product has helped it contain market and its competition components. The company has invested its resources in developing the sector and building the oil business for years. Invested research and development approaches have continued to support the growth needs of the company. Discussing oil in details explains one of the basic components of ExxonMobil. In the earlier years of oil discovery are dated back to the early 19th century with the original refinery of paraffin form crude oil as one of the first discoveries. A Scottish chemist is associated with this drive with a notice of natural petroleum as early as 1847. The chemist distilled oil to light form suited to use in his oil lamp and from that time, the product has grown to become a black piece of gold as referred to commonly by the market players. Besides the light oil for the lamp, thick oil that lubricates machinery also developed and this turned the simple crude oil identified into a product that had numerous functions and could satisfy needs of the world. From the discovery of the crude substance to the identification of its refinery and different products that it could form have all seen a raise in the quest for this product worldwide. Each year more and more barrels of crude oil are discovered and explored. Considering the historical lines, 1859 had 2000 barrels, 1869 the crude oil discoveries yielded 4215000 barrels, 1879 the barrels grew to 19914146 barrels to a level of 126493936 barrels as per 1906. As the discoveries continued, the consumption rate of the product also grew with more needs and applications of the product coming to life, discovery of automotives and the essence oil plays in providing energy, the product has grown to give the world a reason to have life simplified. Research The research is majorly through secondary data collection that seeks to use resources available on the internet on the different subjects. The research identified a number of issues relating to the prices of oil and the factors that affect it. The study produced a report that is as detailed below. Changes in Oil Prices over the Years For the past years of existence, crude oil like any other products has had prices fluctuate more regularly than normally. These changes in prices swing around aspects of supply shortage. The cycles of fluctuation normally take a short period and base more on demand. The 20th century has been rocked by numerous price controls and difference in production. As per 2010, the price per crude oil barrel weighed at $28.52 per barrel with inflation adjustments made. The oil prices having maintained for years, the fluctuations as per 1947 and 2010 a period within which the price per barrel swept close to $20.53 barrel with a 50% of the time. Among the major changes in prices registered, the price raised to $30.00 as per the war experienced in the Middle East. Among the many countries, controlling the oil prices is the US where the price for averaged barrel was at $23.67 per barrel as per 2010 compared to the general price on the world platform of $24.58 per barrel. According to research, the demand for oil will continue growing and an estimate that by 2030s the price of oil will respond to the demand aspects that will grow for 90%. Considering the above prices, Exxon Mobil has chances of performing better in the future. The difference based on the average oil prices of $135.04 of 2014 to that of 1979 that peaked at $115.89, the revenues in the oil sector seem to suffer inflation like any other market forces (McMahon, 2014, March 6). These effects of inflation affect the prices of the oil and may affect the business. Good business strategy as applied by Exxon will help the company scale through such times. Seasons of Good Oil Prices and Bad Oil Prices According to Forbes, oil prices normally go down in February and normally run through July. In relation to 2012, this trend changed with the oil prices hitting as much as $111.31 and remained declining for a number of weeks. The crude prices fall is a bonus to the economy since the prices of oil will go down opening the way for other economic activities to take place and lower their charges encouraging more economic activity. (Oil and Gas Event That Bucks the Trend. n.d.). Crude Oil Prices Reacting To a Number of Geopolitical and Economic Events Oil prices are sometimes affected by geopolitical and economic events such as the exhaustion of the US spare reserves for oil, the Iran-Iraq war that left many oil pools robed and disrupted (U.S. Energy Information Administration - EIA - Independent Statistics and Analysis, n.d). Any event that has the potential to disturb the flow of oil and its other products to the market or has the potential to affect its production and refinery processes ahs a huge impact on the oil prices. These and other geopolitical events coupled by weather aspects affect the way the world trades and deals with the access and distribution factors pertaining to oil hence affecting the prices. The more difficult the access of oil the more high the prices the easier it is to access it the lower the prices go. These effects affect factors of demand and supply. The uncertainties that these events cause affect supply and demand. Among the many events related to history that affected the oil prices, include the Iranian revolution, Arab oil embargo, Iraq invasion of Kuwait, the global financial collapse among others. The advantage of a controlled geopolitical environment with regard to the American society will have reduced chances of geopolitical factors and weather affecting the company’s performance. Effects of Crude Oil Prices on the General Prices of Oil The price of oil products is controlled by the price of crude oil. In refineries, crude oil is developed into gasoline, heating oil, disease lubricants or petrochemicals. The consumers keep track of these products more than they keep track of the prices of crude oil. This way the consumers only focus on the product rather than the whole process. The prices of crude oil determine heavily the prices of the products. As one of the major raw materials in the making of oil products, crude oil is essential in determining the final market prices. As seasons change and the price of crude oil changes, the business is affected. Shortages and refineries difficulties have in the recent years marked the difference in prices. (Williams, n.d.). World Crude Oil Reserves in OPEC According to OPEC the world’s proven reserves housing oil are in OPEC member countries with the middle East as one of the major holder with 66% of the total OPEC composition. Significant additions to the oil reserves over the recent years have helped improve the reserve capacities of the world. Summary And Or Conclusion Relating to the events registered above, the oil prices of the world rely heavily on crude oil prices that are affected by a number of factors. The factors include the aspects of demand and supply, geopolitical events and weather. These events determine the ease with which supply of the products is possible and hence the satisfaction of the demand factor. A demand factor may include anything that would ensure that the consumption of the product remains possible with customers finding it imperative to consume the products. This way the demand for the product remains seeking supply to compensate it and hence more efforts are driven into supply. The supply if affected by anyway or any factor including geopolitical aspects, the general impacts will reflect in the prices of oil. The price will go either high or low based on the different market effects. If the price goes high, the people will buy due to the necessitate nature of the product. The lowering of the prices serves to ensure the product is affordable and masses consume it to create more room for further production and hence wealth accumulation for the producer. In conclusion, the prices of the oil products rely heavily on the crude oil prices and the actual fluctuations that occur are due to a number of market forces that may stem from areas beyond human control such as the weather conditions and the political effects such as the Iraq Iran war and others. References Learn about ExxonMobil brands and products. (n.d.). ExxonMobil. Retrieved October 22, 2014, from http://corporate.exxonmobil.com/en/company/worldwide-operations/brands-and-products/overview Oil and Gas Event That Bucks the Trend. (n.d.). MoneyShow.com. Retrieved October 22, 2014, from http://www.moneyshow.com/image.asp?imgSrc=DailyCharts/charts09/TD042012_2_large.gif&aid=Charts09-27501&scode=021551 U.S. Energy Information Administration - EIA - Independent Statistics and Analysis. (n.d.). Energy & Financial Markets. Retrieved October 22, 2014, from http://www.eia.gov/finance/markets/spot_prices.cfm Williams, J. L. (n.d.). Oil price History and Analysis. History and Analysis -Crude Oil Prices. Retrieved October 22, 2014, from http://www.wtrg.com/oil_graphs/oilprice1869.gif McMahon, T. (2014, March 6). Historical Oil Prices Chart. Inflation Data: Historical Oil Prices Chart. Retrieved October 22, 2014, from http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Chart.asp Read More