Economics

There is a growth within the global markets, with countries ever becoming interdependent worldwide, thanks to an increase in the variety and volume of over the border transactions of both goods and services, international flow of capital and also the ever changing and diversification of technology. This interaction of economies also known as globalization is one of the major factors that influence the oil and petroleum industry worldwide, producing the oil shocks that have now become so common. These changes are being propelled by factors such as technological innovations, which are stretching the oil reserves by creating an overwhelming demand for the commodity. There is also the effect that economic forces have on the oil industry due to the mobile nature of capital and labour, meaning that this creates the need to offer competitive salaries globally and a finance system that is global. Other factors that affect or bring about the oils shock include location, political factors and the fall of communism. It is important to note that the introduction of price subsidies has aided in the mitigation of these price shocks, though some states are more keen on banning these fuel subsidies with an aim of increasing their fuel sales, especially in the case of oil producing states. These fuel subsidies laws that have been imposed on some countries have forced some oil companies to have their companies in other countries giving rise to multinational oil companies (Clifford 2008).

Currently the amount of oil that the world is consuming exceeds the amount that is being produced. This is concurrent with the current statistics that show that in a day about 84 million barrels of oil are mined and about the same amount is consumed within the same day. The inventory space is limited and its expansion is impossible, even by the use of production in excess or even drawing on excess demand (Ron 2008). This can partly or wholly be blamed on the global economic trend. It is projected that the global demand for oil is expected to rise over the next few years.

The demand and supply for oil are highly elastic and thus the oil market is highly unusual. Irrespective of the cost of fuel, it is hard for the consumers especially motorists to switch to an alternative fuel for their cars. Equally, if the price of fuel was to fall by half or more than that, it would not mean that motorists could go twice as far. This means that even if the price of fuel was to be hiked even more, it would not translate to a reduction in the consumption of fuel. The supply of oil is also inelastic (Ron 2008). Some of these theories of oil supply demand and supply are affected by the factors mentioned below.

These multinational companies have been disadvantaged by a move to some of these regions for instance different economic conditions in these new countries as well as difficult policies. The difference in the political regime other than their own means that the taxes implemented on them and their products could be punishing and thus force them to increase the price of their petroleum products to compensate for the exorbitant taxes. Another disadvantage that these multinational corporations have to face is the different cultures and languages that are found in these countries where they establish their base of operations in. The volatile nature of currencies across boarders is also a disadvantage that these multinational companies have to cope with, considering that currencies tend to lose their value everyday owing to a number of economic factors. This means that the multinational companies have to constantly adjust their oil prices in connection to the United States Dollar. These corporations also face major competition, especially in the case where a corporation establishes its base in a foreign oil producing company. Competition will arise as a result of the influx of supply of oil from the state owned companies as well as other privately owned local oil producing companies. It is important to note though that these multinationals are able to get cheap labour whenever they are based in developing countries that are oil producing (Ron 2008). Another advantage is that these multinationals get to maximize on the profits they get through maximizing on production based on the location of different bases in different locations, meaning that if one of the subsidiary companies is faced with a certain problem, other companies can continue with operations and thus minimize on the organization as a whole recording marginal loss (Menzie 2007).

The South African market is no different from the global market. These factors that affect the global market are the same factors that affect the South African oil market. For example, the economic shocks that affected the world during the recession, affected the price of oil in the South African market as well. The political climate in South Africa has also been a factor that determines the prices of oil within this country. The OPEC which stands for Organisation of Petroleum Exporting Countries of which South Africa is not a member, has been involved in trying to ensure that the interests of their cartel are not violated. Furthermore, the quantities that South Africa produce in terms of export has been too insignificant to enable it to make an impact in the global oil market, according to the World Bank (OPEC organisation 2009).

Such macro economic market forces have had its effect on the South African oil industry, with stakeholders being the worst hit following recent oil shocks. This means that the South African oil companies will have to adopt to the new economic and technological trends and be prepared to deal with economic issues that may arise both locally and internationally.