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The Oil Industry - Essay Example

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The Oil Industry

This research will begin with the statement that the oil industry is not a modern development. It traces back its history to ancient ages. The only problem that has necessitated changes pertains to refinery and exploitation of oil. The modern oil industry emanated from an invention by Colonel Edwin Drake. It involved a steam-driven rig for drilling. This set up an expensive machine that most individuals could not be acquired. The only strategy was to harness resources for acquiring such machines. The machines became more expensive to acquire as time progressed since the demand for oil necessitated very quality product. The first companies progressed to attain revenues that offset their high costs. In this sense, they became monopolies. The main reason of monopoly pertained to the fact that it was becoming difficult to attain the minimum efficient scale.  The established companies were experiencing economies of scale. However, this trend stalled on the formation of unions such as oligopoly.  The OPEC was composed of Middle East Asia countries and Venezuela. They emerged to form a substantial influence on the market. In spite of the fact, oil was a unique product, it could be refined to several products. These products helped create companies such as shell and BP who later influenced entry of other companies. In spite of the domineering presence of unions such as OPEC, prices usually shift in response to notable factors...
There are notable factors that affect the demand of oil. To begin with, there is the concept of the cyclical demand of oil. This pertains to demand of oil that swings according to growth of economies. As economy grows, the demand of oil rises to the same. This is because oil is an essential input of many industries. It is vital to note that oil forms a core part of the production chain. The growth of economies is proportionate to growth of industries. In turn, the industries are triggered to increase production in order that the same meets the increasing demand out of surging income. A relevant example concerns with the case of China. Its demand of oil has substantially increased because of the growth in its economy. In addition, the price of substitutes is a core determination of oil’s demands. This pertains to produc5ts such as gas and coal. In the long-term strategies of many countries, they seek possible alternatives for oil. In this sense, the demand of oil would reduce. For instance, there was a demand of oil in 2004 to 2006 that led to substantial research into its possible alternatives. Additionally, change of climate serves to affect the demand of oil in the countries that experience the four seasons. This is eminent in European countries, USA and Russia. In this sense, there is high demand of oil during winter. This is because individuals require substantial energy in heating systems. For instance, there is increased demand of oil, for heating houses and work places, during fierce winters. In addition, speculative forces influences demand in distinct ways. Due to its imitable qualities, there are always speculations of rise in prices of oil. In one of the most recent instances, individuals rushed to attain ...Show more

Summary

The researcher aims to focus on the level of BP and Shell in order that an accurate analysis becomes possible. From the study, it is vital to note that many companies are conducting oil exploration that could see the industry change to a monopolistic competition scenario…
Author : princess32
The Oil Industry essay example
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