Oil Disaster Sample

It is apparent that the production process of the gasoline and other petroleum products at the Marathon takes a long period of time. This can be attributed to the time the crude oil takes to be available at the refinery as well as the time of refining the crude oil to make available gasoline and other petroleum products. Some oil refineries like Marathon’s Robinson, Ill., are far located from the LOOP, about 769 miles away. LOOP is located in the Gulf of Mexico and it is the central point where the imported crude oil arrives after which it is transported to various oil refineries in the U.S. The crude oil from the LOOP takes about eight to ten hours to be availed at the Marathon’s Robinson, Ill., through the Capline Pipeline. The speed at which the oil moves in the Capline Pipeline is very slow averaging to four miles per hour, just as a walking speed. This mode of transportation is most preferred to other modes like road transport because it the most save and cheap to maintain.

As the transportation time of crude oil is long, it results into delayed production process of the gasoline and other petroleum oil products. For the Marathon to ensure reduced time taken in the process of production, pipeline transport of crude oil should be replaced by road transport though expensive. Crude oil tankers can avail large volumes of crude oil from the LOOP over a very short period of time. As soon as the crude oil alive at the Marathon’s refineries, Robinson oil refinery being one of them, it is processed into diesel fuel, gasoline, and other petroleum products, for instance, kerosene, fuel oil, toluene, jet fuel, asphalt and benzene. This can possible reduce the time of production process of the crude oil.

Crude oil varies broadly in its physical characteristics. It is usually is classified according to its density and the sulfur content. Due to this, crude oil can be classified into light and heavy crude oil. In the light crude oil, there is a higher concentration of light hydrocarbons while in the heavy hydrocarbons there is a higher concentration of both light and heavy hydrocarbons. Light crude oil can be refined easily by use of simple distillation and therefore can considerably take a short time for the refining process to be complete. The light crude oil gives rise to valued products. With the heavy crude oil additional process is required so that the broad range of products can be recovered. This processing takes a lot of time and sometimes the heavy crude oil is sold at a discount. So that the Marathon’s oil refineries can reduce the time of processing crude oil, it is advisable the refineries should be receiving the light crude oil which takes short time to recover highly valued products.

Comparisons between gasoline’s retail price and price of crude oil

Gasoline is a product which has been recovered from crude oil by the process of fractional distillation, while crude oil is a mixture of naturally present hydrocarbons which are refined into gasoline, diesel, heating oil, kerosene, jet fuel, and many other petroleum products. One of the factors which determine the cost of gasoline is the cost of crude oil from which it is recovered. If the crude oil is obtained at a higher cost then likewise the cost of gasoline will cost highly. It has recently been shown that, the cost of gasoline at the pump has gone high almost exponentially but at the same time the cost of crude oil has stabilized and has even gone down. The prices of both crude oil and gasoline are primary determined by supply and demand such that, if supply goes high and demand remains low, then the prices will go down. But if supply remains low and demand goes high, then prices well go high. The factors which affect a commodity’s supply include political issues, inventory levels, shipment or refinery problems, or wars. Demand on the other hand is affected by factors like seasons, weather, economic growth in a given country, and driving habits of people.    

The rest of the factors that determine the pricing of gasoline include the wholesale commodity marked price of gasoline, costs due to refinery processing, distribution and marketing costs, costs at the retail stations, and the taxes imposed by federal, state and local authorities. In the case when the wholesale price of gasoline rises, retailers are forced to pay more as they buy the next load. Because of this, the retailers must raise the price of gasoline so as to compensate for the increased price of the newly loaded gasoline. It has been clear that the prices at the pump are usually high and these reflect the subsequent costs. These prices at the pump as well reflect the profits and losses that are incurred during the refining process, transportation of gasoline from the refineries to the market place, and marketing of gasoline so that it can finally reach the consumers in the market. The taxes imposed by the federal, state, and the local authorities can be equal to 40 or 50 cents for every gallon of gasoline. County, city, and local taxes significantly brings about variation of gasoline prices from place to place. If it taxes were to be taken out of consideration then crude oil alone can affect the remaining cost of gasoline from 55 to 70 percent.

It has been found that market speculations bring about the daily variations of gasoline prices. Market prices of both crude oil and gasoline rise with political instability in other countries, incase of a pipeline or a refinery problem, or if a harsh or a mild winter is expected to happen. Speculators buy a commodity like gasoline aiming at selling it to some other individual at an increased price for more profit. The actions of the speculators bring about significant variations, up and down, in the gasoline’s market price every day. The inventory of gasoline can also affect the prices of the commodity such that if the inventory is low worldwide, gasoline’s market price may go high. Because of this, immediately customer demand goes down as most of the people will buy less gasoline everyday. This can help at large in balancing the supply and demand of gasoline such that the retailer will not run out of gasoline. Refining and transportation plays a significant part in hiking up gasoline prices, for instance if a major pipeline or a refinery is shut down, the supply of gasoline will drastically reduce, resulting into increased gasoline price.   

In the past decade, it has been found that the crude oil prices rose from 12 dollars a barrel in the year 1999, to more than 145 dollars a barrel in the year 2008. This dramatic change of crude oil pricing resulted into exponential increase of gasoline prices in the same period of time. At the pump another 20 percent of crude oil cost is consumed during when it is refined into gasoline. Incase reformulated type of gasoline is produced the costs will go even higher since the conventional gasoline is processed further by adding oxygen to it so that it is less volatile during summer. The storage, marketing, and distribution costs raise the ultimate prices by 10 to 20 percent leaving a meager profit.   

How Marathon can keep the price at the pump the same

Most of the gasoline retailers have convenient stores at the pump so that the customers who come to buy gasoline can also buy their merchandise. It has been found that these retailers make biggest profit out of the merchandise inside the store. The profits are even higher than the ones due to selling gasoline such that even when the prices of crude oil increase, the retailers do not increase the prices of gasoline therefore attracting many customers both to buying the merchandise and the gasoline at the pump. The Marathon retailers therefore should put up well organized and big convenient groceries at the gasoline pumps to enable them keep the prices of gasoline almost constant with very small variations irrespective of the prices of crude oil. The rapid changes in gasoline prices usually frustrate consumers. The changes are due to competition, but to avoid losing customers to these groceries and merchandise, the prices are lowered to match to the competition. When it happens this way, it becomes difficulty for retailers to make profits, they can even lose money.

An alternative to domestic deep water drilling

If the domestic deep water drilling of crude oil is prohibited in the U.S. Government, then most of the refinery companies will have to import the crude oil from foreign countries so that they can remain competitive in the gasoline and other petroleum products market. Though this can result into increased prices of crude oil products as compared to when the crude oil was drilled locally.