Economic effect of rising oil price on a company

ECONOMIC EFFECT OF RISING OIL PRICE ON A COMPANY: ACASE STUDY OF TULLOW CORPORATION (UK)
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Introduction
The ever rising oil prices is a hotly debated topic which societies , organizations, oil companies and even individuals have to contend with. There is no doubt that the ever rising prices of oil have resulted into many social and economic problems not only to the society and businesses but also to the oil producing firms. In essence, high prices in oil products results into reductions of outputs, increases competition for businesses that depend on oil products, and lead to decreased nominal wages and unemployment. This therefore makes it necessary to conduct a precise evaluation with regard to the extent by which a country, business, individuals or oil companies are affected by the rising oil prices. This will assist in the determination of measures that could be effectively implemented by the companies, government or individuals to curb or reduce such effects (Hooker, 2009).
Crude oil constitutes 73% of the gasoline price. The extra cost of the final oil product is dependent on the cost of refining and distribution, government taxes and organizational profits. In most cases, if such costs remain constant, the market price of gasoline may be a reflection of the general oil price fluctuations (Source: EIA, 2013). Usually, changes in oil prices may take up to two or more months to adjust themselves in the distribution and gas plumb. Oil prices are a bit volatile in comparison to gas prices. Just like other goods and services, the prices of oil are influenced by demand and supply. If demand is higher, prices will also be increased. However, if prices become too high, it means that the buyers will be limited, thus hindering the company’s economy. Fig 1.1 shows the contribution of oil and energy in World GDP since 1972 to 2011.
The last decade has seen oil prices increasing tremendously. This price has risen from $11 for every barrel realized in 1999 to $45 for every barrel presently. The World Economic Outlook, (2013) also projects an increase on this commodity’s price.
Fig 1.1 Growth in World GDP, Oil and Energy Consumption


Source: USDA International Macro Economic Data, (2012)
Taking a case of Tullow Oil Corporation, this paper aims to assess the impact of the rising prices on the economy of the oil company. The first part is a general overview of such impact to the oil industry; the second part is an overview of Tullow Corporation, followed by the impact of rising oil prices on the company. The last part is the summary and conclusion of the evaluation.
Impact of the Rising Oil Prices on Companies
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