The Oil and gas prices are some of the most debated when it comes to pricing and profits. There is good reason for this debate, as the oil industry revealed huge profits for the early quarters of 2013. A huge percentage of these profits came from the big five, BP, Chevron, Conoco, ExxonMobil, and Shell. While consumers struggle to pay at the pump, these record profits are being reported by the media. This leaves many to wonder what is really going on behind the scenes. Are consumers being gouged? Are these few large companies working together to set unreasonably high prices? Is there a potential monopoly in the oil industry? The oil and gas industry are also big players when it comes to lobbying and political contribution. It’s obvious they want to keep regulation out of their business so they can continue these profits.
So what exactly makes the price of oil and gas rise and fall? Well there are a huge number of factors involved, and pointing to any key factor is nearly impossible. In the most basic terms, you would think supply and demand would be the biggest factor. While this is true, other factors play a role as well.
Another seemingly huge factor is natural disasters and wars. Acts of nature such as a large hurricane or tropical storm can dramatically impact production. In the case of hurricane Katrina, oil production along the Gulf Coast had to be halted completely, leaving a lingering effect on the regional supply. As a result, gas prices rose dramatically across the entire United States.
Demand remains steady, or even tends to rise in times of disaster. Work crews are frantically scrambling to get to the disaster area, while residents are looking to flee. We have programs in place to help in these types of situations, but they are rarely used effectively. Many felt the release came far too late after the disaster, and that the damage had already been done. Consumers continued to pay these incredibly high prices long after the hurricane hit land.
War, What is it Good for?
As the wars in the Middle East raged on, more and more concern was raised about oil and who would control some of the biggest supplies in the world These price increases were simply because of speculation, and no real threat to the supply existed. Big buyers of oil were afraid their suppliers couldn’t deliver because of the ongoing war. This “speculation” led to some of the biggest profits the oil industry had ever seen. Their oil was selling at all-time high, and the wars turned out to be a huge money maker for them.
A Global Recession
The recession and recent economic downturn can also factor into petroleum prices. Consumers are looking to cut back on expensive, especially when it comes to extra money spent on gas. More and more people are staying home, carpooling, and simply avoiding the road at all costs. This has had a profound effect on the demand of oil and gas, and the industry has had to make some adjustments as a result. The industry has begun developing new technologies to extract oil from the ground. They are hoping these new processes make it cheaper and more efficient to get oil from the ground to the consumer. Schlumberger, an oil extraction firm, success is directly attributed to the rising price of oil, and the methods they are using to extract it from the ground. They have become extremely efficient when it comes to oil extraction, and they have reduced the overall cost of the process dramatically. This allows them to have much cheaper operating costs, and leaves a room for a greater profit. Couple this with extremely high oil prices, and a company like Schlumberger is pulling in enormous revenues and profits.