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Date Created: 11/06/15
Production and Operations Management Production and Operations Management Jessica J Clifton The Business Enterprise Dr Cynthia DaVies May 16 2011 Production and Operations Management Abstract America is the third largest oil producer in the world Combined America and Canada produce almost as much oil per day as Saudi Arabia Oil produced in America Canada and Mexico provides almost 60 percent of our domestic consumption So when experts try to explain away high oil prices by stating that we have no choice but to be subject to stateowned oil companies many of which are from countries whose leaders interests are antithetical to ours it is a clear sign that they are either misguided deliberately misleading or both So can Washington39s policymakers and President Obama do about them The American Energy Act of 2011 enhances the energy security of the United States For decades our nation has been restricted by overly burdensome regulations and legislation that prevent Americans from producing homegrown energy This bill puts power back into the hands of the American people The American Energy Act will boost the American economy and help create millions of jobs by putting government back into its rightful place and empowering Americans to develop our nation s vast energy resources Harder Production and Operations Management Explain one possible option Marathon could take to reduce the time involved in the production process One option for Marathon Oil is to refine just light sweet crude oil At each refinery there are multiple types of crude oil yet the basic two types are light crude and heavy crude The heavy crude oil is thick and requires an extensive refining process While the light sweet crude has an easier refining process and demands much less time in the refining process Also by refining multiple products Marathon must convert each refining station from light sweet crude to heavy crude This takes time A company would choose to refine heavy crude oil because it is much cheaper in cost due to the difficult refining procedure But in order to reduce time a company could prefer to focus just in refining light sweet crude oil Thill Discuss the relationship between the retail price of gasoline and the price of crude oil There are many factors that in uence the retail price of gasoline one of which is the price of crude oil The price of crude oil is basically the price that a refining company such as Marathon pays for the oil This is the bare bones of retail gasoline The refining company must first refine the crude oil so that it can be converted into gasoline and then distribute the refined product All of these costs are factored into the price of retail gasoline Thill Some outside factors that refiners have no control over are the federal state and local taxes that are placed on retail gasoline For example there is a five to ten cents difference per gasoline of gasoline between Pennsylvania and New Jersey This is due to different state tax policies Another component that affects the retail price of gasoline is the cost of the station that Production and Operations Management is selling the gasoline Each station has a different cost for receiving and storing the gasoline all of which is factored into the retail price Thill In the end the most in uential component in the price of retail gasoline is the price of crude oil According to Marathon Oil the price of crude oil affects fiftyfive to seventy percent of the prices of retail gasoline The recent increases in the price of retail gasoline are directly tied to the increase in crude oil due to international unrest increase in demand andor open market speculation marathoncom Explain what Marathon could do to keep the price at the pump the same without losing pro ts if the price of crude increased 10 One option Marathon oil could do is to decrease its distribution and refining cost Marathon must refine all of the crude oil they receive which directly affects the price of retail gasoline If they can operate more efficiently they can produce more crude oil in the same about of time in turn reducing the retail price of gasoline The same holds true on the distribution aspect of Marathon Marathon could distribute the gasoline more effectively or through a less expensive distribution channel they will decrease their overall costs and be able to charge the same price at the pumps while remaining profitable marathoncom Another option for Marathon not mentioned in the presentation would be to hedge the price of crude oil on the open markets Marathon could purchase futures contracts for the price of crude oil in anticipation of the price increase This would lock in the price at which Marathon could purchase crude oil If the price happened to increase by any percentage Marathon would be able to purchase the crude oil at the agreed upon price of the futures contract If the price of Production and Operations Management crude oil happened to decrease Marathon would let the futures contract expire take a small lose and just purchase the crude oil on the open market marathoncom In June 2010 President Obama imposed a six month drilling moratorium If the US government prohibits deep water drilling off the coast discuss how the US oil companies can remain competitive in the US market when over 35 of crude oil is currently sourced from domestic deep water drilling Although thirtyfive percent of US crude oil is produces in domestic deep water drilling less than forty percent of the US crude oil is produced in America That means that the majority of the country s oil is produce elsewhere Therefore if the US oil companies wish to remain competitive they need to increase their exposure to foreign oil Many US companies already believe in this motto and have the majority of their new exploration and production outside of the United States For example Marathon Oil is exploring new areas in countries such as Angola Indonesia and Poland Another location that Marathon and other oil companies are utilizing is the oil sands of Canada Canada is considered a stable country and much safer to do business with as appose to Iran or other Middle East countries The oil sands of Canada give US oil companies a semilocal source for oil if deep water drilling remains of ine for an extended period In the end as the demand for crude oil increases the United States in not going to be able to satisfy its hunger alone Foreign countries whether stable and close to home or turbulent and across the world are going to be Vital in oil production Thill Production and Operations Management References The Time it Takes to Provide America s Transportation Fuels wwwmarathonpetroleumcomthetimeittakesindexhtm 1Q 2011 Earnings Conference Call Remarks Thill J Howard Vice President Investor Relations and Public Affairs wwwmarathoncom Corporate Profile What Sways Global Oil Prices Harder Amy May 9 2011 National Journal retrieved May 21 2011 NationalJoumalcom
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