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Project on petroleum industries

Petroleum Prices Diifer

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Project on petroleum industries

  1. 1. Petroleum Industries: Introduction Oil and petroleum industries are one of the largest sector in the world and contributes greatly to boost the economy of a country, creating lot of employment opportunities. The industry is divided into 3 major components:  Upstream - It is concerned mainly with exploration and production sector.  Midstream – It is concerned with transportation and storage.  Downstream – It involves refining, processing and purifying. The annual consumption of oil worldwide is 30 Billion Barrels. This accounts for the world’s largest industry in terms of dollar value. Over 80% of the world’s oil reserves are controlled by national oil companies. Petroleum industry is the backbone for the economical development of a country. 2. Trend in sales by the major companies in United Kingdom and structure of the United Kingdom Petrol Sector:
  2. 2. The 4 major dominating petrol companies in UK are: 1.British Petroleum 2.Exxon Mobil (Esso) 3.Shell 4.Tesco British Petroleum: It enjoys 16% of the UK’s market share of fuel. Essoaccounts 12% of the UK’s oil and gas production. Shell accounts for 16.5% of the market share. Tesco accounts 15% of the market share. 1. What is OPEC? The Organization of the Petroleum Exporting Countries is a organization which is permanent and intergovernmental created at the Baghdad Conference on September 10-14, 1960 by Iran,
  3. 3. Iraq, Kuwait, Saudi Arabia and Venezuela. The five founding members were later joined by nine other members who are Qatar (1961), Indonesia (1962), Libya (1962), United Arab Emirates (1967), Algeria (1969); Nigeria (1971), Ecuador (1973). Its headquarters were located in Geneva, Switzerland for the first 5 years and was moved to Vienna, Austria on September 1, 1965. OPEC’s objectives are to co-ordinate and unify the petroleum policies among Member countries. 2. Why is OPECoften referred as Cartel? A cartel is a group of firms who collude together for the purpose of avoiding a competition in the market in order to create economic profit for themselves. According to the formation of OPEC, world petroleum market has been differentiated by co-operative arrangements among all the producers, starting from the cartel of major international oil companies to the oil producers in the United States. The Red- Line Agreement in 1914 is establishing the international corporate cartel specified “All middle eastern reserves would be controlled by the Turkish Petroleum Company which was wholly owned by BP, Royal Dutch Shell and the French Compagnie Française des Pétroles.” The Agreement divided the sale of oil in world markets between what is now BP, Shell and Exxon. Also, other oil companies were worked into the agreement through the 1930s and the major MOCs dominated the industry for a period that can be said to span from 1914 to about 1955. The second cartel type arrangement was created and maintained from 1935 to 1970 by several state governments in the US which adopted the market demand pro rationing system with the object of limiting production. Finally, as previously mentioned, OPEC was established in 1960 by five leading exporters after a series of disagreements with the MOCs over the issue of the price of oil and revenue accruing to the
  4. 4. owners of the resources. From the foregoing, it may be deduced that cartels have featured quite strongly throughout the history of the oil industry and the practise of limiting output is in no way peculiar to OPEC. 5.(a) U.K Pound Sterling againstother currencies:- The chart below shows the average exchange rate of U.K pound sterling against various currencies from 2007 to 2013 :- Year U.S.D EURO YEN INR KWD 2007 2.00 1.46 236 78.17 0.54 2008 1.85 1.26 192 71 0.40 2009 1.57 1.12 146 75 0.46 2010 1.55 1.20 133 69 0.43 2011 1.55 1.19 120 82 0.43 2012 1.62 1.23 140 89 0.45 2013 1.65 1.20 174 102.52 0.46 Table 1. shows the fluctuating exchange rate of GBP against different currencies as there is change in the demand and supply of the sterling during these years. Excess supply of sterling have led to the depreciation whereas excess demand of sterling has led to the appreciation in the value of sterling. Thus the chart above depicts the exchange rate of sterling being Table 1. G.B.P against various currencies.
  5. 5. determined by the demand and supply of pounds. The Future of PetroleumCompanies in UK: Most of the people seem to agree that if the world has not reached peak petroleum production, then it will do so within the next 20 years. It is also said that peak oil does not mean that petroleum reserves have run out but that the maximum rate of extraction of petroleum has been reached and the methods of extraction cannot increase the rate regularly. The total rate of petroleum output will decrease significantly and create a question in the minds of many people whether we will have enough fossil fuels for the remaining future. Many efforts have already been made to control the consumption of petroleum. It is already said that the easily extractable crude oil continue to decrease and demand continues to increase all over the world. Outline the 2012 Office of Fair Trading (OFT) investigation into the UK petrol market. To what extent do you agree with the OFT’s overall conclusions? On 28th March 2012, the Office of Fair Trading published a consultation for revised draft on investigation into the competition cases, which was published on 2nd March 2011. This guidance clearly sets out the steps that is followed by OFT during the Competition Act 1998 investigations from opening the cases to the final resolution and results. The main purpose of OFT’s proposal to introduce is to consult and bring in new structure for the way the OFT makes decisions in investigations under the Competition Act 1998. It has also planned and announced its enhancements in making to its Competition Act
  6. 6. 1998 investigation processes. This mainly includes the publication of case opening notices, timetables and new arrangements for internal checks and balances. The enhancements set out in this documents are aimed to increase the speed of investigations and improving the OFT’s decision making process. The guidance is limited to the OFT’s investigations and does not increase to the investigations by sectoral regulators. The Office of Fair Trading investigated and said that it would take a look at whether or not decrease in the cost of crude oil are meant to be passed on to drivers at the pumps, who all are paying near-record prices. It will look to consider if supermarkets and most of the petrol retailers are keeping individuals and independents out of the market and OFT will widely spread claims and news that prices are higher at forecourts in rural areas where is competition is even more. Its review came after the increase of 38% in the price of petrol for motorists between June 2007 and June this year. There was also increase in the diesel costs over the same five-year period. Petrol reached a record high of 142.5p a litre in April after the threatening strikes by the tanker drivers led to panic and buying was made worse by the political ministers saying that motorists should hoard fuel in jerry cans. The OFT said it would try to spend six weeks to find the evidence from the consumer groups before publishing a report in the New Year. It is also important for consumers to know that only one third of the pump price reflects the wholesale price of fuel and of every £1 motorists spend on fuel, more than 60p is just the tax (Beckford 2012).
  7. 7. We should agree with the OPT’s decision and conclusion as their main target is to stabilise the prices of petroleum. It also creates a impression for them and trust in people’s mind. The Office of Fair Trading is also supported by government but serves as different organization. It will also bring equal rights to the people of United Kingdom and affordable to most of them. It is also called as economic regulator in United Kingdom. It main goal is also to make the markets work well for consumers and ensure fair competition between the companies. It also helps in studying markets and taking action wherever possible. It shows consumers the knowledge and skills to make wise choices and get the best value in the markets. List of References: Beckford, M. (2012) ‘Office of Fair Trading investigates UK's £32bn petrol industry’. The Telegraph [online] 5 September. Available from<http://www.telegraph.co.uk/earth/energy/fuel/9522828/ Office-of-Fair-Trading-investigates-UKs-32bn-petrol- industry.html> [5 September 2012]