Crude Oil Price & Oil Refinery Companies

Due to the world’s continuous demand and price fluctuation, the price of crude oil is known as one of the indicators of worldwide economy. Although the price of oil does not directly reflect the status of world’s economy, the change in the price of oil does have a great impact on the economic status. Among 70 and more types of worldwide crude oil, West Texas Intermediate (WTI), Brent Oil, and Dubai Oil are popularly known as the top 3 of all.

During the first half of the year in 2017, West Texas Intermediate (WTI), Brent Oil, and Dubai Oil showed downward trend due to the increased amount of oil production in several oil producing countries, such as Libya, Nigeria, and United States of America. Experts argue that the innovative technical improvement on shale oil production in the United States is one of the leading causes of the recent downward trend of oil price (increasing the oil production by 112,000 Barrel per day). According with the increasing amount of oil production, the level of oil reserve is being kept high recently.

Although the lower price of oil is beneficial to consumers, the price of oil has to stay up at a certain level in order for the oil production companies to keep their business running and to prevent uncontrollable decline on the value of oil. To oppose the downward trend of oil price, OPEC (Organization of the Petroleum Exporting Countries) is in the process of putting an effort to reduce the oil production in Libya and Nigeria during the second half of the year.

Not every oil refinery company is capable of producing crude oil. Some have the option to invest in crude oil in order to provide refined oil to final consumers. Although many consider that the low price of oil will be beneficial to oil refinery companies that purchase the crude oil for refinery, dramatic decline of oil price would be actually fatal to them. Those oil refinery companies have to sell their refined oil at a lower market price even when they bought the crude oil for a higher price. These will reflect tremendous losses on their balance sheets. There would be loss from valuation of inventory as well. Due to systems that are significantly affected by inestimable price fluctuation of oil, many oil refinery companies have recorded losses on their recent quarterly reports.

Brian (ByungYoon) Lee/Illinois University Tax Team