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The Global Oil Industry Essay

4717 words - 19 pages

The global oil industry is a very complex industry. It is one of the oldest in the world as well as one that affects tremendously all aspects of business. Oil is a precious energy source that fulfills 40% of the global energy needs. The products of oil companies revolutionized daily life and the way we do things.
Upstream and downstream are two major sectors in the oil industry. In between, there is another sector namely the midstream. The midstream sector processes, stores, markets and transports commodities such as crude oil, natural gas liquids as ethane, propane and butane. . The upstream sector involves the processes of oil exploration and drilling. Over the years, because of ...view middle of the document...

From inception, there was political conflict between oil producing countries and oil consuming countries. Mexico which was a large producer had its oil companies nationalized in 1938. Then came the Cold War where control of oil was at the center of the struggle. During this period, there was also increase in demand for oil. But, it would not be filled by the five early oil companies, but there was the emergence of OPEC in 1960.
OPEC consisted of twelve oil producing nations including Iran and Venezuela. The dominance of OPEC has resulted in historical fluctuations in oil prises, oil crisis where oil supply was curtailed, for example, the Iran-Iraq War in 1990 and contrasts in oil market stock valuations. Alliances and joint ventures among oil companies, refineries and pipelines were very popular. In the 1990s, as world oil production continue to increase exponentially, the oil companies involved into large oil conglomerates, dominating revenue earnings and profits, to become “petropreneurs”.

Major changes in the Oil Industry
The oil industry generates the largest amount of revenues compared to any other industry in the world. According to the Fortune 500 magazine (2009), three out of the top five most profitable companies were large oil conglomerates. At the top was Exxon-Mobil with revenues of over 440 million dollars, followed in third place by Chevron with over 260 million dollars and in fourth by Conocco Phillips with 230 million dollars. This trend has been consistent over the past 5 years. Five companies, Exxon-Mobil, Royal Dutch Shell, BP, Chevron, and ConocoPhillips had revenues increased by 51% from 2003 to 2007, whilst net income increased by 85%. Net income came from upstream activities, downstream, chemicals and “non-oil” products (Lazzari, 2008). This has been driven primarily by the fact that there is an increase in the amount of persons worldwide who demand energy. The world's oil consumers, joined today by an increasingly oil-hungry India and China, purchase 80 million barrels a day (Koppel, 2006).
The Organization of Petroleum-Exporting Countries (OPEC) has been one of the primary influences in oil prices. In the past, their influence has fuelled oil price hikes including one in 2000 across Europe. However, their influence has diminished because member countries control a much less significant share of the world's total oil supplies than they had in the past. Instead, non-OPEC countries such as Russia, Norway and Mexico have expanded up production capacity as well as new flows of oil fields have been discovered in Africa and South America (BBC Report, 2002). While OPEC still controls more than half of the world's crude oil exports, only three of their members are among the top 10 oil production areas. Hence, it was no surprise when oil prices fell in 2001 although OPEC had taken measures to avoid such a situation. This is important to note because since its inception in 1960, OPEC has the bargaining power in its hands.
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