BP and Consolidation of Oil Industry, 1998-2002
BP and Consolidation of the Oil Industry, 1998-2002
Executive Summary BP should sell its business and start a new business, a clean energy production, because it would lose profits from oil supply. Oil industry had not developed in perfect competition; oil price was easily controlled since oil industry was oligopoly, many consumers exist and the government protected oil industry from competition. However, oil industry is facing perfect competition; oligopoly formation of oil industry would come to perfect competition because OPEC started apart from each other. This perfect competition tends to be price competition since oil is commodity. To maximize the profit, competitors would increase supply with low prices, and the government changed regulations that could trigger to reduce oil consumption and strengthen substitutes. The market would become saturated and slow-growth that cause less profitability.
Analysis First, changes in oligopoly form trigger perfect competition. Although oil industry had been monopoly by OPEC which has more than 70% of world oil reserve and more than 40% of world oil supply, vertically integrated companies, called super-majors that perform exploration, development, refinery, and sales, affect oil prices. These super-majors disturb price control by OPEC because when OPEC raises oil price, super-majors raise oil supply. Some counties of OPEC started to sell oil more than the amount that OPEC set the production quota. OPEC used to control oil prices between $20 and $28 per barrel after forming in the 1960 by holding meetings among OPEC countries. However, vertically integrated companies, whose number of companies was reduced from 24 in 1979 to 12 in 1999 by merging with each other, became powerful. In the 1980, super-majors and countries other than OPEC increased oil stock within the countries, oil prices decreased to $15 per barrel. Oil prices again decreased to $10 per barrel because Asia crises
Executive Summary BP should sell its business and start a new business, a clean energy production, because it would lose profits from oil supply. Oil industry had not developed in perfect competition; oil price was easily controlled since oil industry was oligopoly, many consumers exist and the government protected oil industry from competition. However, oil industry is facing perfect competition; oligopoly formation of oil industry would come to perfect competition because OPEC started apart from each other. This perfect competition tends to be price competition since oil is commodity. To maximize the profit, competitors would increase supply with low prices, and the government changed regulations that could trigger to reduce oil consumption and strengthen substitutes. The market would become saturated and slow-growth that cause less profitability.
Analysis First, changes in oligopoly form trigger perfect competition. Although oil industry had been monopoly by OPEC which has more than 70% of world oil reserve and more than 40% of world oil supply, vertically integrated companies, called super-majors that perform exploration, development, refinery, and sales, affect oil prices. These super-majors disturb price control by OPEC because when OPEC raises oil price, super-majors raise oil supply. Some counties of OPEC started to sell oil more than the amount that OPEC set the production quota. OPEC used to control oil prices between $20 and $28 per barrel after forming in the 1960 by holding meetings among OPEC countries. However, vertically integrated companies, whose number of companies was reduced from 24 in 1979 to 12 in 1999 by merging with each other, became powerful. In the 1980, super-majors and countries other than OPEC increased oil stock within the countries, oil prices decreased to $15 per barrel. Oil prices again decreased to $10 per barrel because Asia crises