Production and Operations Management
The Business Enterprise-BUS508
Dr. John Woodard
August 11, 2011
Marathon is an integrated international energy company engaged in exploration and production; oil sand mining; integrated gas; and refining, marketing, and transportation operation. Marathon is among the top five crude oil refineries in the United States, so surely there is a way to reduce the time involved in the production process. The major crude oil refineries in the United States are located in the hurricane region of the gulf coast. One possible option that Marathon could take to reduce the time involved in the production process ...view middle of the document...
And it takes about four to eight days for crude oil to be processed into gasoline, diesel fuel and other petroleum products. Therefore, all these could be improved by increasing the speed to reduce the time in the production process. The price of crude oil is the most significant factor determining the price of gasoline because it represents the largest component of the underlying cost of producing and marketing gasoline. A change in the price of gasoline closely relates to a change in the price of crude oil. The cost to produce and deliver gasoline to consumers includes the cost of crude oil to refiners, refinery processing costs, marketing and distribution costs, and finally the retail station costs and taxes.
If the price of crude increased by a percentage, Marathon Oil could keep the price at the pump the same without losing profits if they focus on controlling and reducing refining and marketing operating costs and bringing its refineries’ production of gasoline and diesel fuel into the market. When wholesale prices rise, each station acts to maintain its profit margins and quickly passes the increase on to customers. When wholesale prices fall, however, each station temporarily boosts its profit margins by slowly passing the decrease on to customers. Only after the customers engage in a costly and time-consuming search to find the lowest prices are the stations forced to lower prices to a competitive level. Changes in the price of crude oil drive changes in the price of gasoline. The relationship between crude oil and the retail price of gasoline both work together. Oil companies, such as Marathon Oil, are affected by global price changes of crude oil and political effects on their industry. The oil market is highly competitive at all levels and since companies cannot control the price of crude or the prices of products they sell, they can only respond to difficult market conditions by acting on what they do control, their costs.
In the aftermath of British Petroleum (BP) oil spill in the Gulf of Mexico, the Obama administration imposed a six month deep water drilling moratorium in June 2010. In addition to temporary job lose and economic slowdown...