Article Analysis Oil Industry

848 words - 3 pages

The demand for oil and for products made from oil, such as gasoline, is not diminishing. Global demand for these products is only increasing as markets grow and industry increases in areas where it had not been previously present. Companies that produce gasoline have limited capacity to meet these increased demands. There are also increased costs for transportation as well as for the barrels of crude oil necessary to produce gasoline. Events in the world are not proving to be condusive to a reduction in the trading price of crude, there are also competing interests that drive up the price of a barrel of crude. Some of these competing interests are national oil companies in the countries that are producing the oil, for example Venezula, that originally invited the big oil companies in but are now taking over production or demanding a larger portion of the profits. National oil companies are not as efficient at extracting and producing barrels of oil as the global companies who have been in the business for years. This lack of efficiency tightens the market further as the available barrels lessen. Weather also places a strain on the production and availability of gasoline. The crude oil needs to be transported to the refineries and active weather patterns i.e. hurricanes, disrupt supply and further constrict available supply. Many of the refineries in the United States are located off the Gulf of Mexico, which is home to some large storms which disrupt production at those facilities.Most of the organizations quoted throughout this article used a qualitative approach. They pulled known data from the past three years, and used that to provide a forecast of future supply and demand. In predicting demand they correlated the data from the previous years against known current issues to try to predict the upward or downward trend in demand, they used this same methodology in trying to predict supply. An example is when discussing the output from Russia's drilling operations, they are extaploating from a possible issue to a reduced number of barrels being produced over the coming year. This is also a weakness in their forecasts as correlation of the variables does not necessarily mean causation, in this case a reduction of barrels. Another example would be the weakening US dollar, which they predict will continue to lessen OPEC's purchasing power, thereby giving OPEC incentive to keep prices high on barrels of crude oil.These studies used probability and proof in creating their forecasts and predictions. By using past years actuals they are able to show a trend either upwards or downwards, as well as the standard degree of fluctuation. This enables them to build a model that...

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