Outline
Credit crisis has affected local and international oil producing companies because it is only projects that have finance which are able to continue with their operations of drilling oil. Decrease in price for oil make if hard to access it because, the income generated from oil is minimal and can not support it drilling. Financial markets are affected due to instability in oil prices hence reduction in economic growth of the nation. There is need for use of new improved technology in the oil sector so that production is increased and high quality oil is produced that satisfy the consumers’ needs.
The Efffect of Financial Crisis on the Oil Industries (Sector)
According to (Singh, 2005) Local and international oil companies are held behind by increasing credit crisis in their projects. The projects that have finance will be able to complete its operations between 2008 and 2012. There has been changes in several oil companies due to decrease in price of the commodity and credit crunch would make it difficult to access oil reserves due to low price of the commodity. (Vogel, 1983) found that, major oil producing companies such as Chevron corporation and Exxon Mobil corporation will continue with capital programs while oil companies that are not financially stable will reduce their spending amid oil prices that are declining.
Oil Sector before the Financial Crisis And After
(Baxter, 1997) found that, The United States subprime crisis and its global effects affect financial markets. Stable prices of oil and currencies ensure there is growth and increase in prices of oil by the year 2011 when the weakness of rand is expected to improve. (Karshenas, 1990) argues that, the investment group of earth resources is in agreement that the price of oil would increase if the producers would decrease the output and the projects for exploration are delayed due to the financial crisis. This will result to reduced supply of oil in future and as a result the price would go up. Fouche commented that, oil price reached $150 and should not have reached that high. There is high potential of oil and gas in Africa and combination of strategic location in the world, world markets and favorable environment for investment would help in growth of the economy. With enormous growth, mergers and acquisition would be formed in Africa and increased private equity. (Nolan, 2003)
(Veseth, 2002) found that, in future, development corporations are planning to increase its investment project and strategic business unit and private partnership has financial pipeline for investing in oil projects while other organizations are walking away due to credit crunch. During the boom of the commodity, Africa and South Africa could benefit but this was not achieved due the poor infrastructure. Further, renewable and nuclear energy are the areas where investments need to be increased in future. At present, many opportunities are available for energy sector entrepreneurs and bigger opportunities would come about for energy projects to be maintained. (Zell, 1990)
Solution
According to (‘Connor, 1962) The drilling technology need to be improved so that risks to the environment as a result of offshore drilling are prevented. New areas for drilling oil should be opened and reduction in the limit to drilling of oil. (Ikenberry, 1988) argues that, infrastructure should be improved so that after drilling the oil, there can be good means of transporting to consumers. Oil industry should be nationalized so that the oil sold in the country is bought in the global oil market. OPEC need to reduce its oil production so that it can keep up with supply of oil in the world to ensure global price is not affected. (Frynas, 2000)
Drilling of oil well according to survey done by DTI IN 1998 where it failed in the year 2000 when operators were uncertain about drilling (Maull, 1989):
Trends in oil and gas Production 1970 to 1997:
References
Singh m. (2005): International Encyclopedia of Energy Resources: amazon.com PP23-24.
Veseth m. (2002): The Rise of the Global Economy: Oxford University press
Zell H. (1990): Africa-the neglected continent: Journal of the World Book
‘Connor H. (1962): oil crisis in the world, US: Monthly Review Press
Frynas J. (2000): Conflict and Litigation Between Oil Companies: Oxford University press
Maull H. (1989): Regional and International Dimensions: Burns & Oates
Baxter V. (1997): The Effects of Industry Governance on Offshore Oil Development: -Blackwell Synergy
Casson A. (2002): the political economy of oil: John Wiley and sons
Vogel D. (1983): The power of business in America: political science journal
Nolan P. (2003): Challenge for Large Firms from Developing Countries: Management Journal
Karshenas M. (1990): Oil, state and industrialization: Journal of Energy and Development
Ikenberry G. (1988): Oil Politics and the Capacities of American Government: Cornell University Press