Distribution of Oil in Economics

The discovery of oil in the 1800s was important to the world economy. It contributed to the invention of a combustion engine. Nowadays, major distributors would fail without oil hence triggering a collapse of the economy. Crude oil is a substance that naturally occurs in different amounts and areas globally of the oil is concentrated in the Eastern Hemisphere while is in the Western one. Oil is used after refining and splitting into different products. The consumption of oil has grown since the 1990s. The International Energy Agencies forecasts a continuous international demand for oil due to the emerging economies. Therefore, the role of transport will also rise. There are different ways and phases of distributing oil. The latter include two methods, namely the upstream distribution of crude oil and the downstream transportation of the end product. The distribution method differs from the pipeline, rail, trucks, tankers, and barges. The paper discusses the domestic and worldwide upstream and downstream distribution of oil and its effects on the market.

First, crude oil is distributed through the pipelines to the storage facilities. In addition, it is circulated to the refinery at the production sites. Thereafter, it undergoes a refining process resulting in the output of the final products. Further, refined oil is transported to the storage facility through pipelines distributing it to the international markets overseas using tankers. At the local market, the end product is circulated through pipelines, railways, and roads. After refining, the final products are traded in the domestic market either wholesale by wholesale or retail. The oil consumption is not evenly distributed globally as the Organization for Economic Co-operation and Development (OECD), and oil-rich nations consume more than the less advanced ones. Recently, oil consumption in OECD countries has been declining. Apparently, the emerging markets in the developing countries are using more energy that requires the output of crude oil. The countries use the output in the transport sector and industries as their economy grows. The demand for the end product is a significant factor in determining its price. Therefore, it is vital to know the effects of oil distribution in the market due to the current and future patterns of consumption (Benes, Chauvet, Kamenik, Kumhof, Laxton, Mursula, & Selody, 2015).

The oil producers include the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC. OPEC owns 70% of oil reserves and coordinates its target market to influence the price. Non-OPEC produces oil and invests it based on market prices. Its supply relies on the International Energy Agency (IEA) and the United States Department of Energy (DoE) estimates to produce and distribute oil. The oil prices have increased since the 1990s due to the demand. About 40% of all cargoes transported over the sea are oil. Recently, the prices for oil have gone down significantly due to its high production. The end customer benefits from the low prices. The production is high, but the distribution and refinement slow down the exportation. The US builds one refinery per decade since the 1970s, but it functions on 62% of the total volume. The country’s refineries have reduced by eight compared to 2009. Relatively, the volume is still higher than in any other nation. The results in future mean high prices due to less distribution. The economic activity or GDP influences oil prices and demand. Whenever there is an abundant economic activity, the distribution increases since production entails the use of oil as an input. Additionally, high oil prices result in less demand hence less distribution.

Gasoline and other fuel products go through a distribution process. The process involves the automotive fuel distribution chain and refining at the dispatch station. The output products go to transporting sector. The vehicle of transportation entails cars, rail, coastal tanks, barges, and pipelines among others. Thereafter, the products are delivered to marketing terminals or small depots. Later, in the domestic markets, the products are distributed to the petrol stations hence transferring into underground storage. The petrol stations use the automotive fuel tanks where the customers purchase the end product (Moss, & Young, 2009). The dealers own petrol stations and agree with the oil companies on certain terms on distributing the final products to the customers. The petrol service stations sell oil to the customers as fuels for their vehicles. The examples of dealers include Shell, PETRONAS, Petron, BHS, and Caltex. It is vital to note that the government subsidizes fuel prices. The increase in the distribution of oil and fuel globally is due to the demand of customers to operate vehicles, machinery, and industries (Kang, Kang, & Yoon, 2009).

The Liquid Petroleum Gas (LPG) is an end product of refining petroleum. It is distributed or traded internationally through cylinders. LPG has numerous uses that include construction and recreation in the market among others. It contains propane and butane used for commercial applications. The LPG usage at home includes cooking, water heating and as a source of energy for industries. In addition, it is used for fueling vehicles. The product distribution is via bottled gas cylinders of different sizes to the domestic and industrial consumers. According to Abdullah and Basirun (2011), it is important to note that the government subsidizes its prices. The management of LPG distribution networks comprises of high levels of consistency and safety. The operators use a certain and real-time view of the network. Therefore, the distributing company should access gas measurement. Balancing capacity and maintaining clear records of events is also important in distributing refined oil (Clo, 2013).

There are various techniques for distributing oil. The roof tanks used in distribution have a different classification. There are fixed roof tanks that do not have both internal floating roof and vacuum vent. There are fixed roof tanks that have an internal floating roof but no vacuum vent. Some fixed roof tanks do not have an internal floating roof but have vacuum vent where pressure range has an effect on storage emissions. Some external floating roof tanks are used in marketing terminals (Ravi, Bosma, & Gastebled, 2002). A bottom loading system is used during LPG packing in the ships. In other cases, slash loading is used positioning the outlet above the tank. Some emissions occur during the distribution chain of oil while handling gasoline. Therefore, the process of distributing oil enables transportation and affects the final price of the product (Ntziachristos, & Samaras, 2009).

In conclusion, the distribution of oil is significant to the petroleum industry. This process involves high cost and risk of petroleum spilling. The paper discusses the domestic and international upstream and downstream distribution of oil and its effects on the market. It concludes that the demand for fuel has caused an increase in oil prices. Recently, the prices of oil seem to be unpredictable as countries use other means of producing energy. Therefore, the prices of oil will always be unpredictable, and the cost of distribution is vital in determining oil prices.