Oil Industry Analysis
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Oil industry analysis plays a vital role in evaluating the functioning of oil industry, especially during crunch situations of demand and supply imbalance. Such an analysis gives an unambiguous picture of the present scenario as well as past trends of the world oil industry.
The oil industry comprises of many oil companies that search for and produce crude oil. These companies produce petroleum products by extracting crude oil and refining it. These firms market their products to numerous industrial and retail consumers. Some of the major companies producing oil products are ExxonMobil Corp (XOM), British Petroleum PLC (BP) and ChevronTexaco.
Oil Industry Analysis: How is the Oil Industry measured?
Oil companies measure oil production in the unit of barrels (bbl). One barrel equals 42 US gallons. The oil industry uses a system to indicate production. While ‘m’ signifies 1000, mm indicates one million. Hence, one million barrels are represented as ‘mmbbl.’ Exploration & Production (E&P) companies usually describe their production in units of barrels of oil equivalent (BOE).
E and P companies keep oil and gas products in reservoirs and report the quantity stocked in reserves by using bbl and BOE terms. Such companies calculate and predict their proceeds and earnings by evaluating reserves.
Oil Industry Analysis: How is the Oil Industry tracked?
Here are some ways to track the oil industry:
Profit Analysis: Profit analyses are carried out in terms of:
- Total profits: This evaluates the effects on expenditure flows inside the economy.
- Profit rates: These reveal the efficiency of a firm’s management to utilize available resources.
Acquisition Cost of Crude Oil: It is a consistent measure of the actual cost of crude oil to the refiners. It also reveals the mixed (light and heavy oils) qualities of crude oils used by refineries.
Price Differentials: This takes into account aggregate net income, average monthly prices and the movement of monthly spot market prices.
Oil prices surged through a large part of the first decade of the 21st century. While the high price of crude oil curbed demand in 2008, oil prices plummeted in early 2009. A study conducted by IHS Cambridge Energy Research Associates estimated that 52% of the potential growth in production capacity till 2014 is at risk of cancellation or deferment. This loss of 7.6 million barrels of oil per day will be a result of inefficient project economics or restricted cash flow from investors.
