The oil industry is a very important part or sector of the world economy and should be developed and taken care of in an appropriate manner. It is certainly one retail sector that has had considerable changes and development in its core business. The industry has continually gained popularity and attracted a lot of interest, which has consequently contributed greatly to the development of economies of the countries that deal in it. This paper gives the macro-environmental analysis and the market research of the oil industry by utilizing the PESTEL model. However, it is the responsibility of the government to ensure that it creates a favorable environment for the smooth operation of the industry.
The petrol retail sector is certainly one retail sector that has had considerable changes and development in its core business. In recent years, the petroleum industry has attracted a lot of interest. This is an industry that contributes greatly to the development of economies of the countries that deal in it (Fleig, 2005, p89). In the past decade, increases in the price of the commodity brought about a big challenge for the retailers of service stations to run lucrative, sustainable and practical businesses, as the increase in the prices resulted to negative impacts on the volume of sales. The industry’s new entrants and new competition presented by some other retail businesses made changes in the industry necessary. The industry of petroleum has seen the introduction of new businesses at the service stations for the purposes of generating income for the business so as to ensure that there is viability and productivity (Sobel 2008, p42). The propagation of service stations, controlled margins of retailer on volume performance and petrol has all brought concern regarding the individual service station’s survival.
The economical effects of the fluctuations in the price crude oil have ultimately affected the retailers as well as motorists. The United Kingdom’s price of petrol depends exclusively on the conditions of the international market. This industry is faced with various challenges and changes. The future uncertainty and unpredictability of the exhaustible resources’ supply, such as crude oil influences the price of the crude oil that the global market experiences (Bushell and Stan 2009, p71). Therefore, the demand for energy puts more pressure on the price as the global economy grows faster. The uncertainty about whether the deregulation of the industry of liquid fuel brings a new dimension to the future of the industry. Some of the giant retailers in the industry include Total, the Royal Dutch Shell, ConocoPhilips and Chevron. This paper is going to look at the risk factors associated with the supply of crude oil derivatives like petrol to the West Dulwich shell filling station in London.
PESTEL analysis, which stands for Political, Economical, Social, Technological, Environmental and Legal, is a description of a framework of the macro-environmental factors that are used in the component of environmental scanning of the strategic management. It is part of the analysis of the external environment when carrying out a market research or doing a strategic analysis, and offers an insight into the various macro-environmental factors that should be taken into account by the organization or company (Fleig 2005, p44) It is a fundamental strategic tool that helps in the understanding of the decline or growth of the market, the position of business and operations direction. The increasing significance of ecological or environmental factors in the initial or early years of the twenty first century have introduced green businesses and facilitated extensive use of an up-to-date version of the framework of the model. The following is the PESTEL analysis of the supply of crude oil derivatives like petrol to the West Dulwich shell filling station in London:
Crude is among the most needed commodities allover the world. Any amount of change in the price of crude oil can lead to both direct and indirect impact on its derivatives, and consequently on the countries’ economy. The OPEC countries are the principal producers of the crude oil that is used worldwide. Therefore, it means that any policy that is made by the organization or some countries within the organization regarding the prices of crude oil will greatly affect the supply of petrol and diesel to the service station (Sobel, 2008, p.34). Any decision taken by the countries within the organization, for instance raising or reducing the prices of crude oil may definitely affect the level of price of the petrol and diesel in the global community markets.
Political stability within the countries that produce crude oil is also essential to its availability and also influences its prices to a great deal. For instance, a lot of the crude oil is produced by the countries in the Middle East, and if there is conflict in the region, the drilling of oil will be affected. Lack of political stability such as war or terrorism in the Greenwich region, and even pirates might make it difficult for the products to reach the petrol station due to fear by the suppliers, or even damage to the tankers.
Demand and supply is balanced by the global oil inventories. If the production of crude oil exceeds its demand, the surplus product can be kept. When the consumption is higher than the demand for the product, then inventories can be tapped so as to be in a position of meeting the rise in demand, and the connection between the prices of oil and the inventories of oil enables correction in both directions (Risk Analysis in Oil Refining Sector, 2008). The supply of crude oil by countries that are not members of OPEC stands at sixty percent of the total oil produced in the world. However, even though their supply is fifty percent more that that of the OPEC community, they do not have adequate reserves to enable them control the prices in the market and can only react to the market fluctuations. On the other hand, the OPEC community has the ability of directly influencing the price of crude oil in the market. This is particularly when the supply of the oil that is produced by the countries that are not members of the community goes down. When the demand for petrol and diesel is high in the Greenwhich region, there will be scramble for available oil thus reducing the supply. This problem can be solved by building adequate reserves for storing the product so that the supply to clients can remain steady when the supply from the source reduces.
The cost of production is also another important factor in determining the price of oil within the global market. If the cost of extracting oil and its eventual refining is too high, it means that the prices will also go high, but if it does not cost much to produce it, the prices will go down significantly. It also requires a lot of finances and resources to discover more oil locations and to develop as well as maintain them. If the funds and resources are available, there would be more discoveries of oil production sites and the quantity produces and supplied to the final consumer will be large (Simmons, 2005, p.23). If there are no funds together with the resources to enable expansion of the production, the supply will go down and the prices will rise, thus making it difficult for the service station to acquire it.
The brokers of oil servers the link between sellers and buyers of the product, and do contract trading for future oil delivery referred to as ‘futures.’ Consumers buy futures for hedging against the increases in the prices of oil that could considerably impact their profitability. Producers of oil sell the contracts of oil futures so as to lock in a price for a particular period and the brokers buy oil futures to give promise of future delivery of the product as a given price. This implies that the oil brokers play a significant role in determining the price of oil in the global market because they are the link between the buyers and the sellers (Anderson and Marhadour, 2007, p.102).
Human populations in the region can also affect the supply because the demand will be high. The population in the Greenwich region is too high and the demand for petrol and diesel may raise, hence the supply decreasing (Fleig, 2005, p.65). Frequent strikes by the tanker drives may also affect the supply because there will be no one to bring the products to the service station. The need to observe laws such us the employment of high qualified, and not to employ underage drivers, but who may be qualified may lead to lack of enough drivers to do the work of transportation. The law also sets a minimum wage for the workers and this would affect the supply of petrol and diesel because there might not be enough funds to employ many drivers to transport the products.
The world of today depends almost exclusively on technology, and exercises such as the drilling of oil requires high levels of it. The equipment used for the process is very sophisticated as they are required to dig deep into the ground and fetch the oil. The oil companies also need to ensure that proper equipment are put in place to avoid things such a soil spillage which can be hazardous to the environment and also cause losses (Anderson and Marhadour, 2007, p.108). This equipment are very expensive and the oil companies are forced to use a lot of money to ensure that all the technological requirements are employed so that production can be enhances and risks reduced as much as possible. When all these production costs are factored in the whole process of production, the final price in the market becomes high. The need to have the latest technology at the service stations such as epos automation systems raises the cost of operation.
In the few past years, the international community has experiences a number of events that have consequently had great influence on the prices of crude oil. Such events include the Hurricane Katrina and some other kinds of tropical cyclone that have struck a significant part of the globe. This resulted in the prices of oil going up by a very huge percentage, which makes it difficult to acquire it in large quantities. Excessive drilling of oil by some oil companies has led to the exhaustion of the sources as well as environmental degradation. This has led to some governments such as that of the United States of America and United Kingdom to prohibiting the exploration in some regions (Black, 2012, p.82). The major aim of these policies is to preserve the resources so as to ensure that there is continuity or sustainability. When these policies are put in place, the quantity of oil produced reduces, thus demand exceeding supply, which consequently forces the prices to go up.
Nonetheless, these policies that are introduced by the governments, which aims at limiting the extraction of oil exerts a lot of pressure on the companies that produce oil to not only finding ways of increasing efficiency, but also finding alternative sources of fuel. These initiatives are very slow and difficult because of the considerable financing required energy and time that go into things like researching and production of such products. More so, when an alternative sources of energy is introduced into the market, there is a substantial time lag in which the designing and production of new products that are compatible is done (Beamish, 2006, p.88). It then can take even more time for the clients to know about the existence or availability of the products and be willing to make investments in them.
Extreme weather conditions also affect the production of the crude oil. For instance, when there is a lot of rain, it becomes very difficult to access the sites of oil drilling. The machines that are used in the process of drilling oil might also be damaged by the unfavorable weather or their operation may just be affected. This makes it difficult for the crude oil to be produced in large quantities, thus forcing the prices to rise (Bushell, and Stan, 2009).
Different countries have different requirements for one to be allowed to start and operate a business. The same case applies to the ownership of a service station as well as the oil companies. If the requirements by the government are too strict, there will be a few suppliers in the market, and in turn the price of fuel will rise (Assilzadeh, and Yang, 2010, p.240).
The oil industry is a very important part or sector of the world economy that should be developed and taken care of in an appropriate manner. Problems such as strikes should be avoided by timely payment so that supply can remain steady. The company should invest in the latest technology that is related to the business to ensure fast delivery of petrol and diesel. Proper plans should also be put in place to ensure that the costs of production and operation of oil companies are reduces and the legal requirements made as flexible as possible. To avoid shortages in supply due to political factors, the company should not depend on a single source of supply, specifically from the OPEC countries. This problem can also help by ensuring that the Greenwich region is safe for any kind of business and the petrol station should also consider using oil pipelines as opposed to tankers.
(2008, 12). Risk Analysis in Oil Refining Sector. StudyMode.com. Retrieved 12, 2008, from http://www.studymode.com/essays/Risk-Analysis-In-Oil-Refining-Sector-185467.html
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