An Insight into Oil and Gas: Understanding the Dynamics of Demand and Supply

The demand and supply of petrol and coal are affected by various factors including weather. During winter, more coal is consumed, while during summer, people drive more to cooler countries. The exchange value of oil, which is typically traded in US dollars, also plays a crucial role in determining the price and demand for oil. A fall in the value of the dollar can increase demand and prices, while an increase in the value of the dollar has the opposite effect. The report concludes that understanding these factors is essential to ensure adequate supply meets customer demand.

Understanding Oil and Gas

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
In all day to day activities, gas and oil are very important. Oil sector includes different
types of processes of refining, exploration, transporting and extraction. Largest volume of
products include petrol and fuel oil. It requires a long process to convert these products to
finished goods (Arezki, van der Ploeg and Venables, 2014). Oil and gas are hydrocarbons which
are the organic compound that consists of hydrogen and carbon. Natural gas contains methane
and it also includes small amount of hydrocarbons like propane. Natural gas can be stated as the
cleanest form of fossil fuel. Both oil and gas were formed millions of years ago through decayed
animals and plants. This report covers the route of petrol and shale fume through oil and gas
industry. There will be a discussion on the impact of International Oil Companies (IOCs),
National Oil Companies (NOCs) and Government agencies on this sector. Lastly, factors which
affect the demand and supply of these products will be discussed.
Route of petrol and shale gas through oil and gas industry
Formation of petrol is through various hydrocarbons that are combined together like
sulphur under heat and pressure. Most of the scientists believe that petrol is formed through
remains of plants and animals over millions of years ago (Woollam, Durnie and Gough, 2013).
When plants and animals die and lie on sea bed, they get decomposed with silt and sand. In this
process, certain chemical like oxygen, nitrogen and phosphorus is cleaned up by decomposition
process done by bacteria. Then left is hydrogen and carbon. Further, at the bottom of ocean, there
is sufficient oxygen and it enables the corps to get decompose entirely. Rest remaining is raw
material to form petroleum. Later, it slowly gets covered with multiple layers of mud, sand and
salt. This process takes about millions of years. Natural heat and pressure under ocean lead to
form petroleum. After that, companies make use of this raw material with the help of drilling
technology so that they will be able to extract petrol for different purposes (Berk and Rauch,
2016). There are different layers which are gathered through petrol and all are used by the
organization to make use of it. In this context, through pressure and heat, organic components
like human and other organics such as lipids, carbohydrates, acids and proteins are gained which
are known as geopolymers. Further, different types of processes are used to convert solid
hydrocarbon into liquid form. One of the most common methods use for the same is high degree
of heat. In chemistry, there is a general rule which states that more the molecule will be, it would
become easy to convert the solid hydrocarbon into liquid form or vice versa. The material for
1

developing petroleum can be found beneath land or ocean. Crude oil is extracted with the help of
drilling machines (Yuan, Liggio and Leithead, 2014). This is normally black and dark brown and
there are also cases in which it can be greenish, tan, yellowish or reddish. From this, petrol is
extracted and it is used by customers in their daily life. Main purpose of gasoline is mainly used
for vehicles. There are no proper substitutes for this product.
On the other hand, to develop coal, it is important that Methane is extracted from mines
so as to prevent explosions. In order to find coal, there are cases in which explosions take place
and this is because of Methane which is found with coal (Davies, Almond and Whitehead, 2014).
It was US which planned to make coal as a commercial enterprise. During the process of coal
matter metamorphism, hydrocarbon gases are formed from coal beds. It includes changing its
structure, composition through pressure and temperature and properties. Methane is a form of
coal which can be occluded, dissolved or free. Extraction of methane can be determined as an
internal part from coal. Further, this can also be stated as the first production technique known as
mining. Then comes the commercial technique. In this stage, Methane is considered to be the
fossil mineral (Macey, Breech and Carpenter, 2014). With the help of commercial methane
production, it enables to supply gas as raw material and energy carrier. After this process, coal is
then provided to ultimate consumers.
Impact, if any, by International Oil Companies (IOCs), National Oil Companies (NOCs) and
Government agencies
Among all the oil reserves of 1,148 billion barrels, 77% of complete resources are
controlled by NOCs and IOCs do not have any control over this. IOCs have control over 10% of
entire world’s oil and gas resources. However, in terms of current oil production, NOCs are
dominated (Edwards, Brown and Helmig, 2014). There are 20 countries across the world which
produce oil and among these, 14 are NOCs. While comparing with NOCs, there are many other
western oil companies which aim at getting higher returns on capital. These NOCs make use of
different set of strategies so that they will be able to provide their services and these are
generally made with substantial consequences for international gas and oil markets. In some of
the cases, these NOCs have interlocking relationship with national government which help in
developing strategies with an aim to get into foreign investment to enter in commercial
considerations (DeMeritt and Young, 2013). At their own country, NOCs make sure that they
fulfil economic and social functions which compete for capital budgets. Further, these are sent on
2

commercial production activities and reserve replacement. According to a report made by The
Banker Institute Policy, NOCs will have a high impact over the future supplies, pricing and
security of oil. With change in time, goals and objectives of NOCs have changed and this was
made according to the changes which took place in tastes and preferences of people. Both NOCs
and IOCs make sure that the price of oil would not get highly affected (Javaherdashti, Nwaoha
and Tan, 2016). When countries purchase oil from other nations, then the rate on which it is sold
is again raised and consumer has to purchase on that price only. In this context, it includes
government agencies which make sure that the price of oil will not increase and has maintained
the standards. This enables to make effective control over the oil services which are provided by
organization to customers.
Factors that may affect the demand and supply of these products
There are different factors because of which demand and supply of petrol and coal gets
affected. Among all of them, few are as follows:
OPEC: There are about 13 nations which fall under OPEC (The Organization of
Petroleum Exporting Countries). These 13 economies are responsible for 40% of world’s oil
production. They are also responsible for setting up policies in order to meet the global
consumption (Arezki, van der Ploeg and Venables, 2014). These countries can also affect the
price of crude oil and can raise or reduce the level of production among member nations.
Demand and supply: When demand exceeds, then more supply has to be made. On the
other hand, if demand is less, then supply can be maintained. There is a strong relationship
among oil inventories and oil price and this highly affects the customer’s purchasing power.
Restrictive Legislation: Majority of oil reserves and production are controlled by
government. There are cases in which countries face issues when the price of oil is raised. In this
situation, they have to pay more because of which they sell it at higher price (Woollam, Durnie
and Gough, 2013). This highly affects the demand and supply of petrol and coal. Further,
different countries have distinct rights to make changes in the price of oil which is mainly done
in order to balance the economy. Price of petrol at US may not be similar as that of UK.
Weather: Like any other factor, weather plays a vital role in affecting the demand and
supply of petrol and coal. It can be explained like in winter, amount of coal is consumed more
and during summer, people drive more to other countries where temperature is low (Yuan,
3

Liggio and Leithead, 2014). In this context, during seasonal time, demand gets highly affected
and in such a case, it is the responsibility of government to meet the same.
Exchange value: Oil is sold and purchased in US dollars. When the value of dollar falls,
demand for oil increases which also raises its price. On the other hand, if value of dollar get
raised, it will inversely affect the price of oil and demand.
CONCLUSION
From this report, it can be articulated that there are many changes which took place in
order to develop oil and make it reachable to customers. It is important that government of
country understands the demand of oil and accordingly, provide their customers with adequate
supply. Further, report shows that it is necessary to use resources optimally so that they can be
protected for a long period of time.
4

REFERENCES
Books and Journals
Arezki, R., van der Ploeg, R. and Venables, A. J., 2014. Understanding international commodity
price fluctuations. Journal of International Money and Finance. 42. pp.1-8.
Berk, I. and Rauch, J., 2016. Regulatory interventions in the US oil and gas sector: How do the
stock markets perceive the CFTC's announcements during the 2008 financial crisis?.
Energy Economics. 54. pp.337-348.
Davies, R. J., Almond, S. and Whitehead, M. A., 2014. Oil and gas wells and their integrity:
Implications for shale and unconventional resource exploitation. Marine and Petroleum
Geology. 56. pp.239-254.
DeMeritt, J. H. and Young, J. K., 2013. A political economy of human rights: Oil, natural gas,
and state incentives to repress1. Conflict Management and Peace Science. 30(2). pp.99-
120.
Edwards, P. M., Brown, S. S. and Helmig, D., 2014. High winter ozone pollution from carbonyl
photolysis in an oil and gas basin. Nature. 514(7522). pp.351-354.
Javaherdashti, R., Nwaoha, C. and Tan, H. eds., 2016. Corrosion and materials in the oil and
gas industries. CRC Press.
Macey, G. P., Breech, R. and Carpenter, D. O., 2014. Air concentrations of volatile compounds
near oil and gas production: a community-based exploratory study. Environmental
Health. 13(1).pp.1.
Woollam, R. C., Durnie, W. H. and Gough, M. A., 2013, March. Physical Chemistry Versus Oil
Field Lore the Key to Demystifying Corrosion Inhibition. In CORROSION 2013. NACE
International.
Yuan, B., Liggio, J. and Leithead, A., 2014, December. Secondary formation of nitrophenols in
an oil and gas production region: insights from observations during the Uintah Basin
Winter Ozone Study (UBWOS) 2014. In AGU Fall Meeting Abstracts (Vol. 1, p. 3234).
5