Essay Title: 

Developing and Applying a Portfolio Management Approach in an Oil Business

April 3, 2016 | Author: | Posted in public administration, social sciences

p Developing and Applying a Portfolio Management Approach in an Oil Business

Chapter 1 : Introduction

1 .1 Background

Oil business provides a large portion of the world ‘s energy needs to fuel industries , transportation , comfort in homes and many other uses From 64 .7 million barrels per day in 1999 , world production grew to 71 .2 million barrels per day in 2004 ( HYPERLINK “http /whttp /www .gregcroft .com /oilsupply .ivnu http /whttp /www .gregcroft .com /oilsupply .ivnu . The increasing demand for oil came from the transportation sector (Oswald , 2004

Oil [banner_entry_middle]

Crisis

The fate of the oil business is closely linked with world events . About one war or political crisis occurred every seven years and nobody was able to manage the political risks of the Middle East (Hartshorn , 1993 There were four major spikes in oil prices : 1974 , 1979 , 1990 and 1999 (Oswald , 2004 . Most of these resulted from conflict in the Middle East Each spike was followed two years later by increased unemployment rates in the US (Oswald , 2004

World demand for oil declined in the early eighties because of projected and actual high prices . OPEC member states had to prorate production based on their reserves ( HYPERLINK “http /whttp /www .gregcroft .com /oilsupply .ivnu http /whttp /www .gregcroft .com /oilsupply .ivnu

Environmental impacts

Environmental concerns have lately been a constraint to the oil industry . Burning of fossil fuels has increased carbon dioxide emission contributing to global heating and rising sea level (Helvarg , 2003 Another threat is oil spills which contaminate the environment as what happened in the Caspian Sea region ( HYPERLINK “http /www .eia .doe .gov /emeu /cabs /caspenv .html http /www .eia .doe .gov /emeu /cabs /caspenv .html

Laws and regulations

The oil-driven problems of the Caspian Sea are compounded by the lack of or weak environmental laws and regulations . At least in the USA there are now laws addressing numerous environmental issues including environmental cleanup (Mundt et al , 1993 . Oil companies could lose more than six percent of their investments to comply with requirements to curb climate change and constraints to access of energy reserves to protect biodiversity , ecosystems and communities especially in environmentally sensitive areas (Duncan and Sauer , 2002

The United Kingdom has the highest tax on gasoline which constitutes about 60 of the of pollution damage (harm on human health and effect on global climate per litre of gasoline (Parry ,2000

Need for portfolio management

The portfolio of assets of OPEC countries are less diversified than other types of private investors being strongly oil-related in the same basket (Hartshorn , 1993 . The earning power of its oil is usually greater than the returns from all its other investments . The net revenues from oil are nearly always committed to the needs of its populations which constitutes a leverage ‘ on government income (Hartshorn , 1993 . These can only be managed on a long term basis adding significant `risk premium ‘ for government oil production investment over and above discount rates of a diversified and less-leveraged private investor to develop a similar oil… [banner_entry_footer]

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