When it comes to the relationship, between the prices of gasoline at the pump, and the demand for raw crude oil, the market forces of supply and demand are the ones to blame for the push, and shove in different directions. If the demand for oil grows or a disruption occurs in the supply system this will adversely affect the prices such that it will put pressure on the prices to surge upwards. By the same logic if the demand falls in the world or if there is an oversupply of the product, this will cause a shift in the opposite direction for prices, and they will plummet.
These principles are common with every product in an economic situation, but are never more typical, and practical when considering petroleum, which is a major global energy source. These theories also apply at the service station. If the retailer aims to act in an individual capacity dictating the prices of his product to raise them above the market price imposed by the current supply of crude oil, then he will end up scaring his customers who will look for business elsewhere where it is more affordable. Thus, the price, and supply situation will determine the retail price of the petroleum products, and not the other way around.
The reason why gasoline would depend on crude oil so much is that gasoline is a byproduct of crude oil. Crude oil is the primary raw material from which all petroleum products come from and in some cases, it accounts for about half of the price of retail gasoline. The price might also be affected considering the situation in some oil producing countries. If there is political instability in the major oil producing countries this will probably drive up the oil prices, case in point: the Kuwait crisis in the nineties.
In the United States, there are several different formulations to gasoline. These different formulations depend on what region, and state is executing them. There are currently some 18 different formulas in the country, and it is quite hard to transfer supply from one state to another with all the regulation and red tape. Few products are subject to taxation like gasoline in the United States, similarly. Each gasoline has its own set of taxes; take California for example, which has a federal motor fuel excise tax. It also has a California state version of the same, as well as, local and state fees, and taxes.
Strategies to keep the price the same without the loss of profit
If the global crude production decreased by about ten percent this, would reflect heavily on the market push and pull forces of price. For one, the demand would spike significantly due to the decrease in supply. At the same time, other oil companies would push the prices of fuel to new highs and marathon may have to do the same, but there are ways that it could minimize that without causing a loss in product sales. Marathon could address the problem in a different perspective.
By focusing on operational, and energy use they could improve energy efficiency and come up with a way to reduce the cost of energy. The plan already in place is to improve the energy efficiency by 5 percent by the year 2015. There are some production protocols and projects that the company is currently engaging in that promise to increase energy efficiency, and would cushion the up surge of prices. The procedural changes and projects that implement asset life such as reduce the energy life such as optimizing of the installation of controls, and pumping units that reduce the consumption of electricity are just some of the methods they could use at plants to reduce production costs.
On the UK Brae asset, there was modification of the export compressors in order to recycle seal gas and reduce flare gas. The Brae project is responsible for massive energy saving in the year 2010 and is anticipated to do the same in the current year. Marathons energy efficiency improvements are made through projects that reduce energy costs consumption, as well as, unnecessary venting. However, the improvements were made in 2010, the energy consumption increased by about 6.3 percent in the following year largely due to increased refinery output volumes.
Some obstacles hamper improvement of the efficiency of the downstream operation. These include the lower refinery utilization, and new regulations that require installation of additional process of equipment, and all of this without the increasing of the refinery output. The finding and implementation of refinery projects may continue to be a barrier in the future, but would greatly help the situation. In the upstream, however, the problem is quite different as it is hard to improve efficiency, as well as, green house gas emission while there is hardly enough energy to sustain the production in the declining gas fields without running at a loss.
Impact of another moratorium
On the subject of the moratorium regulation that was imposed by president Obama on the deep sea drilling that would affect offshore oil, and natural gas production; there are quite a few results that would need attention. Most perspectives stated the first time, which this would cause more harm than good and the projected consequences were massive. Another event such as this would probably be nothing short of a disaster. The first projection stated that the losses would be felt throughout the gulf region, and extend to the rest of the nation.
This is because of the integrated nature of the US economy where a significant hit in one industry would likely be felt throughout the rest of the country’s economic scope. The significant halt to the natural gas exploration, as well as, the deep sea drilling would affect not just the upstream and downstream industries. It would also affect the local, and the state governments and retail stores, as well as, education health and most other industries. The moratorium in general would be responsible for the loss of about 2 billion in output, 8000 jobs, and hundreds of millions in wages.
The onshore communities provide a lot of the goods, and services that the offshore gas and oil extraction require. In this way, a variety of industries is involved in this effort. These onshore jobs in turn support a variety of other industries that include the retail industry. Thus, everything is connected in chain like a line of dominoes. If one of them gets affected then the rest will follow suit. The deep sea drilling, and oil extraction shuts down then the onshore business will lose customers quite drastically and decline leading to the decline of other industries such as the retail industry.
In particular they have no control over the situation thus they do what would come naturally to any such situation, and they drive the prices up if anything just to stay afloat. Of course, this will hit the gas industry from two directions. The supply of crude oil will immediately decrease drastically and from the market forces of supply, and demand, the demand will spike. This will cause a similar trend in the prices of fuel and cause the retail prices to hike. This effect will be immediate, and quite severe. On the other hand, the effects that ripple through the retail industry will reach the gas industry and be milder, but will cause mass loss of jobs.
Marathon’s statement on Health, Environment, Safety & Security
When it comes to health, and the environment, as well as, safety standards, the company has engaged in a project of environment stewardship to cater to these pertinent subjects. The operations that the company engages in that involve gas and oil can affect the air, water, land, as well as, the wildlife. At this point, they state that their objective is to protect these resources and try as much they can to reduce the environmental footprint they impose according to.
This in line with the expectations of the industry according to international organization for standards, which claims that all industries that run their businesses related to natural resources, should display social and environmental responsibility. The organization also claims to support the view of a safe working environment by also demanding that their suppliers and associates share the view of safety standards and integrity. The company has invested quite a bit on the security standard, and in that, effect established a corporate security strategy. In this way, they anticipate things such as frequent community concerns so that they do not eventually develop into security concerns.
This helps them to establish their responsibility as an operator to safeguard the safety of their employees, and assets of the community and the business community. On this account, the company provides security risk assessments loss prevention strategies and site security preparedness drills for all of the facilities under risk. All of this is important, and in line with regulations to ensure that, no harm comes to employees and non-employees of the company alike. Even though, all of these regulations are imposed for safety, there is little chance that human or machine error is avoidable at all times. These incidents will continue to happen.