The present report aims to present the governmental analysis action that provides impact on the profitability of the oil and gas retailing industries in United Kingdom. The assignment covers the element of oil and gas retailing market scenario together with the structure of oil and gas sector according to the present economy. The report further includes the factors that affect the current structure of the present sector of oil and gas retail market together with the analysis of factors that drive sustainability of low price of petroleum products over the period of five years. Based on the factors that affect the low pricing structure of oil and gas products, evaluation of possible direction in the pricing structure of the diesel and petrol products in the United Kingdom during the short- term future is been covered in the present study.
During the year 2014, it has been noted that the industry of oil and gas product in United Kingdom generated 1.42 million barrel of oil liquids. In view of the consumption rate during the year 2013, United Kingdom noted to consume approximately 1.508 million-oil barrel and hence the country has been considered as significant importing country of oil as well as hydrocarbon products (Berk and Rauch 2016). In the recent years, United Kingdom has been noted as the highest cost producers of oil and gas valued at around $20.40 in terms of operating expenses and reflected production around 39 billion of oil barrels. However, the overall production reflected decline approximately by 5% while the domestic consumption was around 97% of the total consumption, which was found sufficient (Abdulrahman, Huisingh and Hafkamp 2015). It has been expected that the major consumption of energy would be produced at 70% from the oil and gas production in coming years by the year 2020. Considering the contribution for tax revenues, UK contributed approximately $300 billion due to the high prices in the production oil and gas while the payment of corporate tax involved 28% of the total tax during the recent years (Fritsch and Poudineh 2016).
In the recent financial years, number of companies in the sector of oil and gas retail market declined by approximately 13% resulted in the decrease of production of oil and gas products. In the region of United Kingdom, it has been observed that the region of North Sea was considered as highest producer of oil and gas products during the year 1999 while in the present year, United Kingdom has become primary producer of the products from oil and gas sector (Radnejad and Vredenburg 2015). In addition, the retail sector of oil and gas supported job opportunities with increasing rate that is around 45,000 jobs for export of oil and gas products. Considering the rising activities in the present economy, it has been noted that United Kingdom supported approximately 89,000 jobs as the ownership in the oil and gas sector associates with companies, dealers as well as hypermarkets (Akgul et al. 2014). Dealers as the owner of oil and gas sector refers to the ownership who acquires the industry by the group of individual or specific individuals with the use of organizational brand for the business operation. Besides, hypermarket owners refer to the trading and retailing their own brands for gas and fuel products while the companies conduct the business of oil and gas production by considering lease options or with the group of subsidiaries (Demirbas, Al-Sasi and Nizami 2017).
Due to several changes in the conditions of macroeconomic, the price of petroleum products reflected unexpected fall in the later period of the year 2014, which lowered the cost of living. Certain changes in the supply of petroleum products because of the technological changes influenced the pricing structure as well as the economic activities around the globe affected the price of petroleum products (Zhu et al. 2014). Between the period June 2014 and January 2015, it has been noted that the price of oil and petroleum dropped by around 50% which consisted of several phases. During the initial stage the fall in price observed from $110 per oil barrel to the amount of $80 per oil barrel between June 2014 and November 2014. Beyond the period, the fall in price of oil and petroleum reflected more than 40%, which amounted to less than $50 per barrel of oil during the period of January 2015 (Yeh et al. 2016). During the period 2011 to 2013, the fall in petroleum prices reflected 20%, which affected the transport industry by around 70% and domestic sector by around 4%. Similarly, during the year 2010 it has been noted that fall in the price of oil and petroleum was considerable lower as the fall in price was less than 15% that affected transport sector and domestic sector moderately (Davis 2014).
There are certain factors that drive the sustained low price in the products of petroleum and gas over the years. The primary reasons for considerable drop in the price of petroleum include supply and demand factors, which not only affected the price in United Kingdom but also in other regions. During the period 2013 to 2015, it has been noted that the supply of petroleum products has been higher than expected while the demand for products was weaken in Europe as well as in Asian region (Mirkouei et al. 2017). Further supply of oil and petroleum products reflected positive results even in the region of Iraq and Saudi Arabia other than the region of United Kingdom. Accordingly, the federal government did not opt to decline the production of petroleum due to which the oil prices reflected significant fall by around 20% (Aburas and Demirbas 2015).
Other than the demand and supply factors, fall in the price of petroleum was due to the factor of econometric techniques that assist in measuring the activity of global economy. The econometric techniques in terms of regressions resulted in certain errors that placed pressure on the factor of petroleum supply was a cause for fall in price of oil and petroleum. Further, there were certain limitations in the approach of econometric techniques that harmed the strategic behavior for supply and consumption level of oil, which eventually declined the oil price over the recent years (Neumann and von Hirschhausen 2015).
Financial investors’ response has been another significant factor that resulted in decline of oil and petroleum prices with respect to the non- commercial trading in the futures and options. Due to movement in the recent price of oil and petroleum products, speculations in the commercial trading and consumption rates has been affected together with the changes in the equity prices within the oil and gas industry. During the period 2012- 2014, trading by the non- commercial investors represented sharp increase other than the traders related to production and consumption of petroleum products. It has been noted that the investment position for the non- commercial traders in the future market affected the factors the directly associates with the commodity prices (Appiah-Adu and Sasraku 2016).
Price of petrol and diesel products influence the living standards of people largely that varies quite frequently due to several reasons including the factor of demand and supply chain. It has been observed that the use of sustainable energy reflected immense growth indicating the less demand for other resources of oil and gas products in terms of petrol and diesel products. In such case, it can be said that the price of the oil products that is price of petrol and diesel expects to decline in the near future (Iqbal 2015). As discussed, the price of oil and gas products depends on the factor of present supply of products with respect to the output, the price of the petrol and diesel might expect to decline. It has been noted that the United Kingdom has been the largest producer for oil and gas products accordingly, if the supply and consumption level remains same as per the consumption rate in the present situation, price of petrol and diesel is expected to fall at least by 7% to 10% (Cornell, Fox and Wright 2015).
However, considering the Brexit vote factor, motorists in UK would face a rise in the price of petrol by around 5% as the price of Brent product reflected a rise in price level in the recent years. During the recent years price of oil and has been declining by more than 50% but the price of specific product that is petrol reflected steady increase as the consumption has been averaged at around 109p per litre. Moreover, the governmental duty and other charges on the fuel products has been increasing that is 57.95p for a litre that consists the price of product more than half of the existing price and eventually affects the country’s current that lowers increases the overall price of petrol (Casault, Groen and Linton 2016). Accordingly, it can be said that the price of petrol in United Kingdom might move in the increasing direction in short- term future.
On the contrary, United Kingdom is expected to face several challenges for the production of oil and gas products as well as the exit of Britain or Netherland from BREXIT would affect the market economy. It is expected that the market structure in United Kingdom due to change in BREXIT vote would result in recession and accordingly, the price of petrol and diesel would move in the decreasing direction in the short- term period (Neumann and von Hirschhausen 2015). Several oil traders as well as oil analysts analyzed that fall in the price of petrol and diesel in United Kingdom would not hold the market for long- term. In addition, depreciation in the currency value of United Kingdom, Pound Sterling indicates the appreciation of foreign currency, which eventually states the decline in the consumption level of petrol and diesel products. Hence, if the level of consumption declines and the supply level increases, the price of petrol and diesel will reflect decrease in the rates in the United Kingdom (Appiah-Adu and Sasraku 2016).
Considering the present estimates in the retail price of gasoline products and products of diesel fuel, it can be said that United Kingdom experienced changes in the fuel price for over 95%. In addition, the factors on change in inflation rates, tax policies and costs of distribution would affect the price of products in oil and gas industry and is required to be considered to estimate the price of petrol and diesel. Accordingly, the price movement for the product of petrol and diesel has been estimated to move in decreasing direction as per the analysis given by “International Monetary Fund as well as Energy Information Agency” (Davis 2014).
Conclusion
As the oil and gas industry in United Kingdom reflects flourishing production, it is essential for the government to undertake various actions to improve the marketability as well as the pricing structure of the products. Consequently, the industry would expect to earn improved profitability in terms of trade of petroleum and duel products in the coming years. It is recommended that government may impose improved environmental policy on the traders, which indicates the reduction of greenhouse gas that would affect the pricing structure. In order to improve the consumer demands for the petroleum products, the oil and gas retailing organizations may incorporate competitive change between several regions.
The industry of oil and gas has been affected due to several reasons, which resulted in decline of price for oil and petroleum products. The primary reason for the decrease in product price incorporates demand and supply chain that eventually lowered the profitability of the companies in oil and gas sector. In addition, certain unhygienic factors resulting in production of bio- fuels as well as high cost elements led the fall in petroleum price in UK. Additionally, it has been estimated that due to changes in inflation rate, BREXIT vote as fall in the value Pound currency, UK would experience fall in price of petrol and diesel in near future.
Reference List
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