Evaluating Internal and External Business Environment

This document evaluates the internal and external business environment and its impact on the UK markets. It discusses the changes in crude oil prices from 2010-2020, economic determinants of the housing market, and the impact of government actions. It provides insights into the oil and gas industry, economic factors influencing the market, and government interventions. Find expert study material and solved assignments on Desklib.

EVALUATING INTERNAL
AND EXTERNAL
BUSINESS ENVIRONMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
1. Changed Crude Oil prices in UK from 2010-2020..................................................................3
2. Economic determinants of the changes in the Housing market........................................6
3. Impact of Government Action on UK markets from 2010-2020............................................8
4. Immediate and Future Effects of COVID-19 on Crude Oil Prices........................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Evaluation of Internal and External Environment of the business is mandatory as missing
any of the factor can impact the operation and function of the business greatly. Internal factors
are within the organization including its strengths and weaknesses and the external factors are
outside the organization like PESTLE factors, competitors etc. which impacts the overall
productivity and growth of the business.
UK Oil and Gas Industry faces a rapid growth since many years but since 2014, it faced a rapid
decline in the prices of the Crude oil which surprised the oil traders (Ahiaga-Dagbui and et.al.,
2017). The pandemic of COVID-19 added much in weakening this demand further. The report
will evaluate the Oil & Gas Industry of UK by discussing numerous topics. It will begin by
discussing the ways in which the prices of the crude oil changed from 2010-2020. It will further
discuss the economic determinants of all the changes discussed initially. The government actions
and its impact will be highlighted. It will be finalized by analysing the immediate and future
impact of COVID-19 pandemic on the Crude Oil Prices.
MAIN BODY
1. Changed Crude Oil prices in UK from 2010-2020
The sudden fall in the prices of the crude oil influenced the world economy in a greater way.
Especially, the UK economy was impacted by this unexpected and vast decline. Following are
the impacts:
 It happened in the mid-2014 which should increase the economic activities. The cost of
production of the companies who are totally dependent on oil products became very low
resulting in the increased investment and employment.
 Some sectors were impacted negatively including oil and gas extraction whereas some were
benefitted by it like agriculture, coke and refined petroleum, air transport as there is a fall in
the price of their inputs (Cordes and et.al., 2016).
 Some services like water transport will also be benefitted by this sudden decline.
 In this situation, UK has divided all these effects in 3 scenarios using CGE Model which will
evaluate the impacts when the reduction will be permanent, $50 per barrel settled, increase in
GDP of UK by 1% between 2015-2020 thereby increasing the employment around 1,20,000
in 2016.
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 When the fall is temporary, then the GDP is expected to increase from 0.2-0.5% and the
employment from 3,000 to 37,000 (Lorusso and Pieroni, 2018).
 There is an increase in the incomes of household therefore the consumer spending because of
the passing of the cost savings and increase in labour demand leading to more wages.
Impact on UK’s Position
Till 2014, the trade of oil was good but faced a rapid decline by mid-January 2015. The
main cause of this rapid decline was supply and demand side factors. When discussed about the
supply side, there was an increase in the output because of the increase in production by non-
OPEC producers and US shale oil production. On the other hand, the demand side was highly
impacted by the non-accelerating China’s pace and the economic recovery being very slow
(Nonejad, 2020). All the above mentioned factors contributed in the oil’s weakening demand.
The oil consumers were trying to take benefit from it as they can have the oil at least prices and
can sell later at higher prices when the demand will increase. The falling of Oil prices will be
supported by the technological advancements also because less investments are needed when the
extraction is done by using advanced technology than the labour.
Figure 1: UK net exports of crude oil and oil products
Source: Trends in Oil prices and the UK’s position, 2020
The above figure shows that UK being the net exporter of petroleum and natural gas, became the
importer of crude oil from 2005 and of oil products from 2013.
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Figure 2: Real GVA growth for oil and gas sector vs rest of economy of UK
Source: Trends in UK prices, 2020
Figure 3: Alternative oil price scenarios
Source: Modelling approach, 2020
The above figure shows the 3 scenarios using CCGE model – 1: Price being at a low level of
US$50/barrel. 2: Gradually increase in price to US$73/barrel in 2020. 3: Price gradually returns
to US$108/barrel in 2020 (Yang, 2019).
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Therefore, the rapid decline in the prices of the crude oil became a history for UK which
impacted every sector of the country. The impact of this must be positive for the economy of
UK, households and the government but it depends on the way the prices evolve from there.
2. Economic determinants of the changes in the Housing market
Economic determinants are the factors associated with the socioeconomically positioning
of family, neighbourhood financial conditions, society and cultural factors that create impact
over economic positioning of individuals. Economic determinant involve profitability and other
financial tools that influence the buying decision of customers in respect to oil and gas prices in
United Kingdom. Economical determinants also involve disposable income of people, interest
rate, unemployment rate, construction cost, credit and supply of money that create direct impact
over gas and oil market of UK. These economic determinants lead vast change in business
profitability from 2010 to 2020 (Raghavan and et.al., 2016). In these mean while time, there are
various determinants like disposable income, credit and supply of money etc. fluctuated that
improves pricing of housing market. Factors like high cost of transportation, high unemployment
rate etc. brings huge loss in prices of oil and gas market in United Kingdom. However, housing
market influenced by the state of the economy, disposable income, interest rate and flexibility in
population size. Economical determinants impact on oil and gas market can be projected in
following points.
Economic growth: Economic growth of country is a major economic determinant whereas that
creates impact over oil and gas prices in United Kingdom. With high economic growth and
improvement in disposable incomes, people has been able to invest more in the expenses. People
get to consumer more oil and gas that directly create demand in the market related to oil and gas.
This is the basic law of economics as the demand of the product is increases than the price will
also increase of such products and in case of reverse cycle than price will decrease in case the
demand is low (Winter, 2019). Product demand directly influence the price of such products in
market. More income of people allows them to create more expenses in fulfilling the individual
needs. It increases the purchasing power of customers. This is the massive economic determinant
that creates impact over the income of people and their expense capacity of customers in oil and
gas market.
Per capita income: Per capita income is the economic determinant that projects the income of
the individual on an average basis in United Kingdom. Over the period f time United Kingdom
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has generated huge economic growth due to industrialisation and other economic growth which
has resulted into increased per capita income of individual in United Kingdom. Increased income
of individuals also allows them to enhance the buying capacity of people. All the economic
growth and per capita income of people in United Kingdom has supported the buying capacity of
individuals in United Kingdom which also allowed them to invest more in the oil and gas market
(Medina, Bucheli and Kim, 2019). This has also increased the consumption as people have
invested in luxurious vehicles that consume more oil and gas. All these aspects have projected
that customers carry more buying capacity which has increased the demand in United Kingdom.
Unemployment: Unemployment is another economical determinant that creates impacts over oil
and gas market in United Kingdom. Unemployment is a negative factor that negatively affects
the oil and gas market. Unemployment restricts the buying capacity of customers in United
Kingdom that negatively affect the demand in market. In United Kingdom even after the
economic growth unemployment is still a part of society. Government is putting efforts to reduce
the unemployment rate in United Kingdom. Still the unemployment exists in United Kingdom.
This factor negative affect the market as it reduces the demand in market.
Interest rate: Interest rate is another economical determinate that create impact over the demand
of products n market. In order to conduct the business operations company take various loans
from different financial institutions. All loans company take charge interest against such loans
(Duarte and et.al., 2018). All interest company bears include in the product prices that ultimately
requires bearing by the customers in market. Over the period of past 10 years prices of oil and
gas has constantly increased in United Kingdom which also reflect that interest rate has also
increased over the last 10 years.
Foreign exchange rate: This is the major factor that directly put an impact over the oil and gas
prices. Oil is generally imported from Arab Countries and such nations that involved in
production of oil and natural gases. Foreign exchange rate put a direct impact over the prices in
international market. Price range fluctuation also influences the prices in market. Every time the
price in international market gets increases than it also increases the price of oil and gas in
United Kingdom (Sertić, Barcic and Klarić, 2018). Currency exchange rate of Pound against the
trading currency also involve in pricing. All these aspects of foreign exchange rate put a direct
impact over the prices in the market.
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Consumer confidence: Confidence is also considered in economic determinants because it is
essential to identify either that people wants to take risk to take out loan payments. Expectation
of customers also involve in prices. When people are fully filled with expectation then they like
to buy products like vehicle which consumes oil and gas and other such products that consume
oil and gas and which directly increase the prices in market. People in United Kingdom carry
strong buying power as the currency value is high and also the per capita income of people also
favours them to spend in meeting all different needs.
BREXIT is another factor that created impact over the prices in United Kingdom in
respect to oil and gas. BREXIT has created restrictions in trade in United Kingdom which has
also given opportunity to exporter of oil and gas in United Kingdom to charge extra money
against the same quantity of products. They get to increase the prices of oil and gas. All the
above mentioned economic determinant that directly influenced the oil and gas prices in United
Kingdom. Even small and big factors put impact over demand that directly influence the prices.
3. Impact of Government Action on UK markets from 2010-2020
The main need for the British Business is clarity from the government which can support all
types of businesses. This will motivate the business persons to make larger investments in the
times of financial crisis also. In UK, following were the impacts:
 Focused on the long term goals instead of short term decisions so that the structures can
be stable and can perform functions in a stable manner by using various policies and
strategies.
 This provided vast range of competitors to all organizations and a regular commitment
which helped the companies to bring innovation and growth (Wright and Heald, 2018).
 It helped in realizing the area where UK can prove to be stronger by analysing its
strengths and weaknesses thereby enhancing those areas.
 Government intervention proved beneficial in obtaining the desired outcomes by making
strategic partnership collaboratively and challenging.
Government in UK has also developed a ‘new sector’ approach as a part of strategies of
industries. Before this approach, the horizontal policies were followed including the setting of
legal and regulatory frameworks under which the businesses operate across the economy. These
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methods used were quick but not risk-free. So, following are the impacts of the government
intervention in UK markets from 2010-2020:
 The sector considerations developed by the government resolved the problem of economic
fluctuations across various sectors. For example, the trend of internet was promoted by the
government which enhanced the online banking enhancing the convenience of the people and
less cost for the banks to manage the accounts. This also made the companies to gain the
competitive advantage in terms of innovation, various challenges and the response to
numerous policies.
 Government supports all the industries in one way or the other. But there are many risks
associated with it in order to achieve the objectives. Therefore, the government has also
introduced ‘Sector Lens’ to minimize the risks in case of failure. This helps in adjusting the
policies when the minimum levels of income are set and the sectors of low wages being
competitive.
 The Government involvement in the operations of the businesses also makes them aware
about the protection and preservation of the environment. All the companies in UK are
focussing on the reduced carbon emission which is contributing positively to the
environment. The government also imposed taxes and penalty on the companies who violate
the environmental laws and acts. It also keeps a tab on every company about the emission of
the harmful gases and implement various ways to aware the companies and the customers.
 The approach introduced by the government helped in organizing the businesses in sectors
because some companies have similar market conditions, products, services, and some
common links to markets. So, they must be categorized under same category to have a
systematic hierarchy (Berndt and Wirth, 2018). This helps in increasing the interaction
between the government and the business. So, the government in UK acts as a facilitator in
bringing all the sectors together to have a mutual understanding to solve mutual problems.
This made the market of UK work collaboratively with each other seeking each other’s
problems.
 The Government dialogue of UK with the businessmen contribute in global investment
decisions. it imposed everything accordingly including the taxes, regulations, policies,
technology implementation etc. For example, dialogue which was between the government
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and General Motors played a major role in decision-making of car manufacturer in order to
invest £125m for the next generation plant and projects (Lorusso and Pieroni, 2018).
 The sector approach also became able to cut the other departments of the government. For
example, the procurement policy which plays a significant role in the healthcare and rail and
also in food regulations (Wang, Tsai and Li, 2017). Government also put regulations on the
retailers who sells food products to ensure the quality of food they produce which safeguards
the health of the consumers and the employees. this made the retailer industry also aware of
the health issues of the people.
 Government also helps the companies to promote the products through campaigns and gives
legal order to carry the promotional activities. It also hinders the policies of some
organizations who violate the laws and regulations. This made the UK market systematic and
under the rules of government body giving it a unique identity.
Therefore, the government of UK impacts its market in many ways which makes it more
competitive and productive.
4. Immediate and Future Effects of COVID-19 on Crude Oil Prices
COVID-19 impacted every industry in a greater way but had greater impact on the Crude
Oil prices. Crude Oil prices are falling day by day due to the pandemic of Coronavirus. As the
number of cases are increasing rapidly, the energy demand is decreasing globally. The concerns
towards the lockdowns are growing continuously.
Brent crude faced decline of 2% weekly and the West Texas Intermediate dropped by more than
3% (Sharif, Aloui and Yarovaya, 2020). COVID-19 is becoming the most suppressing factor in
terms of Crude Oil prices and will continue in the foreseeable future. As the industries are
resuming the lockdown, the products and services are becoming limited, the demand for the
unnecessary products is decreasing thereby changing the behaviour of the consumers rapidly
leading to the change in the need of the goods and products in such economic parameters.
The analysts were expecting that after the lockdown and the pandemic gets over, the things will
become normal to its earlier condition but the increasing cases of the coronavirus are
strengthening the concerns among the oil traders and stakeholders of energy.
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This pandemic did not impact much economically because the banks supported them by giving
them packages which motivates the traders to make more innovative strategies in order to save
the economy of the world.
The travel restrictions also contributed in drastically declining the demand of the crude oil. Many
conflicts aroused due to this because there was no extra place to store the oil and couldn’t sell it
by facing a loss. So, this was expected that the recovery of the oil will take almost 1 or 2 years.
Future Impact
The effect of current pandemic can be bearable at such levels but giving multiple
warnings about the other pandemics and epidemics in future becomes more surprising. For
example, the pandemics like SARS (Severe Acute Respiratory Syndrome), MERS etc. were
ignored by many analysts and policymakers but are not drawing the attention of many people
(Albulescu, 2020).
COVID-19’s impact is most dangerous among all because its death toll is already 60% higher
than expected and there were not much benefits proved by social distancing, self-isolation, social
shielding etc. which can be implemented to avoid this pandemic. So, this cannot be predicted that
when the oil prices and the global oil demand will recover completely.
Figure 4: Monthly Average WTI and Brent Crude Oil Prices
Source: A crude future? COVID-19s challenges for oil demand, supply and prices, 2020
COVID-19 played a large role in collapsing the WTI (West Texas Intermediate) for many other
reasons except the decreasing demand and limitation of storage of ongoing production. The
contracts of WTI oil futures were ending so they have two options either not to buy it or to buy
and store it as they cannot sell it or they can sell it by facing a huge loss.
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Therefore, the pandemic of COVID-19 not only impacted on the present sales and demand of
crude oil and its prices but created hurdles in the future recovery and development.
CONCLUSION
The report evaluated the Oil and Gas Industry of UK since last ten years. It will analyse the
ways in which the crude oil prices changed along with its impacts from 2010-2020. The
economic determinants like interest rate, unemployment, per capita income etc. were also
highlighted. It also evaluated the impact of the government action on the markets of UK. Finally,
it described the immediate and future effect of pandemic of COVID-19 on the Crude Oil prices.
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REFERENCES
Books and Journals
Ahiaga-Dagbui, D.D. and et.al., 2017. Costing and technological challenges of offshore oil and
gas decommissioning in the UK North Sea. Journal of Construction Engineering and
Management. 143(7). p.05017008.
Albulescu, C., 2020. Coronavirus and oil price crash. Available at SSRN 3553452.
Berndt, C. and Wirth, M., 2018. Market, metrics, morals: The Social Impact Bond as an
emerging social policy instrument. Geoforum. 90. pp.27-35.
Cordes, E.E. and et.al., 2016. Environmental impacts of the deep-water oil and gas industry: a
review to guide management strategies. Frontiers in Environmental Science. 4. p.58.
Lorusso, M. and Pieroni, L., 2018. Causes and consequences of oil price shocks on the UK
economy. Economic Modelling. 72. pp.223-236.
Nonejad, N., 2020. Crude oil price changes and the United Kingdom real gross domestic product
growth rate: An out-of-sample investigation. The Journal of Economic Asymmetries. 21.
p.e00154.
Sharif, A., Aloui, C. and Yarovaya, L., 2020. COVID-19 pandemic, oil prices, stock market,
geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from
the wavelet-based approach. International Review of Financial Analysis, p.101496.
Wang, Y.C., Tsai, J.J. and Li, Q., 2017. Policy impact on the Chinese stock market: From the
1994 bailout policies to the 2015 Shanghai-Hong Kong stock connect. International
Journal of Financial Studies. 5(1). p.4.
Wright, I. and Heald, D., 2018. Memorandum: The Impact of UK Common Frameworks on the
Devolution Settlement.
Yang, L., 2019. Connectedness of economic policy uncertainty and oil price shocks in a time
domain perspective. Energy Economics. 80. pp.219-233.
Online
A crude future? COVID-19s challenges for oil demand, supply and prices, 2020. [ONLINE].
Available through :< https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7360512/>
Modelling approach, 2020. [ONLINE]. Available through :<
https://www.pwc.co.uk/assets/pdf/ukeo-oil-prices-march-2015.pdf>
Trends in Oil prices and the UK’s position, 2020. [ONLINE]. Available through :<
https://www.pwc.co.uk/assets/pdf/ukeo-oil-prices-march-2015.pdf>
Trends in UK prices, 2020. [ONLINE]. Available through :<
https://www.pwc.co.uk/assets/pdf/ukeo-oil-prices-march-2015.pdf>
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