Even though we are all pushing for renewable energy, we have to face reality, and theis reality is that presently, oil is largely responsible for keeping our society afloat, when it comes to energy. Your favourite fast foods use cooking gas to make food, most cars still run on diesel or fuel. In fact, we would be stuck here if we decide to look at how oil is used every day in our households. Why do you think crude oil is the world’s most traded commodity?
If you’ve been looking for a good investment product to add to your portfolio, you might want to consider oil and gas investments. You never have to worry about real-world use at least for the next 80 years since we would continue to use this natural resource for years to come. Right now, oil prices are rising as you would have noticed if you’ve made a visit to a gas station recently. All these points to a product with the potential for long-term return.
When investing, chances are you would do so at a retail level or buy shares of an oil exploration company. Well, whatever way you choose to put your money into this commodity, it is important you understand the difference between oil companies. Below we’ve shed some light on them.
Upstream: Exploration and Production
These types of companies focus on the early stages in oil and gas production and distribution. As you might have guessed from their name, their job is to explore potential areas that might have natural resources. Once this has been pointed out, they buy the land containing these resources.
The whole aim of an exploration company is to find whatever they’re looking for in large batches. If a big enough cache is found, they would be able to influence oil prices massively. While some companies focus on exploration and production. They’re others that niche down to exploration only.
Midstream: Transportation and Storage
Finding and extracting oil is just a small part of the big picture. Before it finds its way to homes, gas stations, and other places where it is needed, it must first be refined but to do that, it must be moved from where it is being extracted to a refinery. This is where transportation and storage companies come in. They collect oil from exploration-type businesses and move them.
The transportation process can take place in a lot of ways. You might have heard of oil pipelines at one point as this is a crucial method in transporting this commodity within the country and sometimes outside. They might also use oil tankers and trucks. This type of enterprise is also responsible for storing the product in warehouses.
Downstream: Refining and Sales
Refining oil is the next step once the product has been moved. Most times, a transportation company would be responsible for moving the product to a refinery. When it gets there, the raw material is burned at different heat temperatures to produce different products. We won’t go into that extensively, but you can click https://en.wikipedia.org/ to learn more about this.
Once the product has been refined, they’re responsible for selling it directly to consumers such as gas stations. Sometimes the product is not completely refined, and other companies might buy them to further refine it themselves. This is normally done to save time or because of a lack of infrastructure.
While some companies pride themselves in being specialists in a particular niche of petroleum production and distribution, we still have generalists. Known as “integrated businesses”, they handle more than one task in the production and supply chain. Oftentimes, you can find them exploring, extracting, transporting, and refining the product, all by themselves.
This gives them a certain monopoly over the market and reduces their operating costs. The advantage is also the disadvantage because businesses like this are one of the toughest to run.
A lot of complicated mechanical parts are used in the production and distribution of petroleum. A service company doesn’t deal with oil directly, rather it deals with the businesses that handle petroleum. They supply equipment and handle maintenance and repairs. It is common to see a service company supplying two major competitors. Watch this video as it explains how to properly research a company you wish to invest in.
Now that you know the difference in the type of petroleum companies, you’re in a better position to make an informed investment decision. Make sure to perform background research on whatever company you chose to do business with.