Breakdown in supply chain raises oil prices

When many sectors and people need oil, the power is in the hands of those who can provide it. Some countries have their own companies that collect and refine crude oil, and proceed to export it to the nations that need it. However, if part of the supply chain breaks down, those countries' businesses and citizens may experience setbacks that could be financially detrimental.

Benefits of low oil costs
In the past few years, the United States has accumulated a surplus of crude oil. From its own drilling activities, the nation has been able to provide  the resource to its citizens and export some to other countries. This has brought gas prices down to a six-year low. Costs fell 4 percent to $43.08 per barrel, the least expensive price since 2009, according to The Associated Press. The decrease is almost a $20 drop from June's number of $61.43.

This is beneficial to consumers, shippers and airlines, as procurement has become much cheaper. Once crude oil is refined into petroleum, it has a plethora of uses. In 2013, petroleum made up 36 percent of the energy the U.S. used, the Energy Information Administration reported. It also aids in the production of plastics, asphalt and polyurethanes. Gas for transportation, heating and cooking require crude oil as well. 

Broken pipe hurts supply chain
Unfortunately, this decline in prices isn't as beneficial to the oil industry as it is to consumers. While consumption of both petroleum-based and nonpetroleum-based fuels will continue, the former will see a significant decrease by 2040, according to the EIA. The increasing use of biofuels and alternative energy has lowered the need for crude oil, which forced oil companies to cut spending and lay off employees, The Associated Press explained.

The surplus may also see a decline, as the seventh largest crude oil refinery in the nation and the largest in the Midwest has had to temporarily shut its doors due to leaky pipes, The New York Times reported. The Whiting location just outside of Chicago is BP's primary facility and can produce 413,000 barrels of refined oil daily, which creates 19 million gallons of fuel.

Repairs on the refinery are expected to take at least a month, according to Reuters. BP officials are not sure yet what has caused the leaks, but it may be corrosion from the crude oil. The $4 billion Pipestill 12, which runs oil from Canada to Whiting, refines approximately 240,000 barrels per day of oil, which will leave BP behind on work and production. This may put a dent in BP's revenue, as the breakdown comes at a time of high travel.

"It is a mess," Tom Kloza, global head of energy analysis at the Oil Price Information Service, told The New York Times. "It might take a month to fix, and it's a bad month to miss because you can still see a lot of summer driving."

The timing of the shutdown has also affected vacationers, as the halted manufacturing at Whiting has caused gas prices to increase dramatically in the Midwest. Wholesale costs have risen 50 to 80 cents as far southwest as Oklahoma and northeast to the Great Lakes, The New York Times explained. Prices for consumers at the pump have experience a related change, with increases as high as nearly 25 cents.

With prices high and production down, other U.S. companies may face added pressure to make up the difference. There is no definite timeline for Whiting's crude refinery to be up and running, so similar businesses' supply chains must be efficient.

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