Production and Operations Management Essays - Commodity Markets

Production and Operations Management BUS 508: Business Enterprise 11th August 2011 2 Analyze Marathon?s product process and determine which phase is open to the greatest number of efficiency improvements. Explain your rationale. Marathon is among the top five crude oil refineries in the United States. It?s an integrated international energy company engaged in exploration and production of oil, sand mining, integrated gas, refining, marketing, and transportation operation. Marathon needs to upgrade a few of their refineries and pipelines in order to increase the production process of heavy crude oils, (marathon.com). For example, once the Detroit Heavy Oil Upgrade Project is completed, the refinery crude capacity will increase from 106,000 bpd to 115,000 bpd. The upgrades will allow the Detroit refinery to process an additional 80,000 barrels of heavy crude oil per day (detriothoup.com). The existing pipelines at the Detroit refinery do not have the capacity to transport additional volumes of crude oil to meet the refinery?s upgrade needs. Therefore a 1.5-mile pipeline will provide an alternative oil supply line to the refinery and provide extra security in the event of a supply disruption. Pipelines are the safest and the most efficient way to transport crude oil and other liquid petroleum products. They reduce traffic and pollution as well as provide economic benefits. Pipelines transport two-thirds of all the crude oil and refined products in the U.S. compared to three percent by tanker trucks. According to detriothoup.com, currently 100,000 barrels of crude per day are transport to the refinery. Transporting the same volume of oil by tanker truck would require between 400 to 500 shipments per refinery day which would be a logistical nightmare and is not cost efficient for any company. Marathon Oil Corporation is a global corporation that is among the world?s leading energy companies. The company?s strategies lie in ?applying innovative technologies to discover and develop valuable energy resources, providing high-quality products to the marketplace and delivering value to all of the 3 Company's stakeholders? (Marathon, 2008). Marathon produced a video entitled The Time it Takes to Provide America?s Transportation Fuels. The video, set in six phases, explains the process of gasoline production from its inception as crude oil to its processed products as gasoline and other petroleum products. A subsection of Phase one explains the world?s demand for oil and its projected growth. According to the video, it has been estimated that ?world oil demand will grow from 84 million barrels a day in 2009 to approximately 99 million barrels per day in 2030? (Marathon Petroleum Company, 2011, Phase one, World/U.S. Demand); and that the increase would ?require daily crude oil production of fifteen million barrels more than the current production? (Marathon Petroleum Company, 2011, Phase one, World Production). If this projection is correct, the U.S. must develop ways to increase crude oil production since ?less than 40% of the crude oil used in the United States refineries was pr oduced in the U.S.? (Marathon Petroleum Company, 2011, Phase one, Marathon Crude Oil Supply). Discuss the relationship between the retail price of gasoline and the world demand for crude oil. The United States is a big retail gasoline market. There are more than 150,000 retail stations across the country; most locally owned and operated. Every day, tens of millions of Americans stop at a retail gasoline station, regardless of the daily increased gas prices. Whether it is cold, hot, rainy or windy; a retail customer has to fuel his/her vehicle. Because gasolines, as well as crude oil, are commodities that are traded worldwide, the price is determined by supply and demand. ?If the wholesale price of gasoline goes up, retailers have to pay more when they buy their next load. They raise their price to cover the increased cost of the new load? (Marathon 4 Petroleum Company, LLC, 2011). The gas prices fluctuate, depending on how high or low the demands for these commodities are. The cost of a gallon of gasoline is determined by production and operational management, federal and state taxes, refining and distribution cost, marketing, retail and profits. Gasoline prices fluctuate in local markets due to competitiveness, world events and disruption in the refinery process. The crude oil market and gasoline market are entangled. However, there are some instances when changes in their