How Does Oil Price Plunge Effect Oil Company 2015

Goldman Sachs, a leading investment management firm, predicts that oil price will keep plunging. The main support for this price drop is caused by the oversupply of oil. Due to dropping oil prices, oil companies will encounter a huge decrease in revenue. From this article and the matrices explained in class, there is a correlation between oil price and Oil Industry’s revenue, business model and cost. By comparing the article and the matrices, one can assume that oil companies are becoming less profitable compared to few months ago. The analysis and explanation will be divided into 3 parts: Oil price & Revenue, Business Model of Oil Company, and Oil Price & Cost. Through these analysis, the effect of dropping oil prices can be better understood in the oil industry.

Oil Price & Revenue

According to the article, oil price has plunged from $60 per barrel down to $40 a barrel for the past two months. For oil companies, if they don’t increase their sales during this period of time, their revenue will go down because price of goods is decreasing. The oil price dropped because oil market is more oversupplied than expected, and because oil demand is slowing down. For the past few years, China is the fastest growing market, however, China’s development is slowing down, so that their demand of oil is decreasing. China is the world’s second-largest economy, after United States. China has been growing rapidly for decades, however, there’s always a concern about its unsustainable rapid economic growth. This summer, this unsustainable economic growth eventually impacted worldwide markets. China’s economic growth based on exporting finished goods around the world. Since global market was experiencing slowed growth, fewer products have been manufactured by China. Due to fewer finished goods exported, the factories and supply chain of China manufactured goods consume fewer raw materials, including oil. At this point, it’s very hard to sell more oil to any market in the world....