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If you stop to think about all the oil and gas-related products that we need to maintain our standard of living - from central heating and unleaded petrol to cling-film and lipstick - you'll begin to realise how great its economic importance is.
The price of crude oil
Since almost all manufactured goods rely on oil for some part of their
manufacture (energy, transport, raw materials, etc.), the price of crude
oil has a large influence on the world's economy. For example the uncertain
political situation in the Middle East in the 1970s brought about a rise
in oil prices which led to global recession, bringing inflation and unemployment.
The possession of oil means tough economic decisions for the country concerned. Since the oil is a finite resource, should the oil be left in the ground to wait for its price to rise as demand increases? Or should it be sold to develop the economy in the short-term and allow for investment in other areas?
The supply of oil
Every stage of finding and getting crude oil from below the earth's
surface to the refinery and then the final products to consumers is extremely
expensive. Major oil companies both compete and co-operate. For example
two companies with refineries at opposite ends of the country might exchange
base products rather than shunt tankers around the country needlessly.
Companies also share oil terminals and pipelines because of the enormous
capital cost of these facilities. It is common to send batches of different
products down the same pipeline with only a little cross-contamination
between a small amount of products (which are then reprocessed).
Supply chain managers have the task of ensuring that the oil companies meet the consumers' needs for different products. These needs are not static - in the short-term they vary with, for example:
Over the longer term, changes in demand can be caused by new developments such as unleaded petrol and fuel for supersonic aircraft. These changes may mean conversion of existing refineries or new plant design.
The price of products
Each time oil is processed (distilled, cracked, etc.), the aim is to
add value to the product. However, as crude oil and petroleum products
are traded on the world markets the actual prices obtained can
go down as well as up. Regardless of market value, the long-term speculative
costs of exploration and large capital costs of production and refining
installations, together with the daily costs of running them and getting
the products to the customer, must still be met.
The customer pays a large amount in duty and taxes. About 80 pence out of every £1 spent at the petrol pump is paid directly to the exchequer in duty and taxes.