In this report, BHP Billiton has been chosen as a business organisation to study the factors affecting its demand and supply functions, how changes to demand and supply during previous two years have affected BHP Billiton performance, opportunities and risks future changes to demand and supply function might pose to BHP Billiton. BHP Billiton is world’s largest diversified natural resources company. BHP Billiton’s portfolio consist of discovery, development and conversion of natural resources including iron ore, coal, manganese, copper, aluminium, nickel, diamonds, potash, uranium and petroleum. BHP Billiton has acquired unique position in the resources industry due to their proven strategy.

In this report BHP Billiton’s petroleum business has been considered for demand and supply study. BHP Billiton has been expanding its petroleum business in last few years aggressively due to high demand of energy in world market. Figure 1 shows the world energy growth during last century and demand forecast for emerging markets in next two decades.

Figure 1

As part of BHP Billiton, their petroleum business has the strong financial base which enables them to invest and expand through economic cycles and maintain a long term view. They invest in large projects with multiple opportunities over a long duration to maximise its asset value. During last five years in a row, they have invested close to US$2 billion in development capital.

Factors Affecting BHP Billiton’s Petroleum Demand and Supply

In petroleum world market, demand fuelled by millions of individual firms and domestic users, while supply influenced by a few, specifically few nations and the Organization of Petroleum Exporting Countries (OPEC) cartel. This result in an oligopolistic market for petroleum, supply is limited by a cartel to raise prices, and even non-OPEC countries do not always respond in rational way. Fundamental changes took place in last few decades in the world petroleum market, as control of oil resources shifted steadily away from the major oil companies to producing countries (Shojai 1995). However, during current decade new oil discoveries and lack of investment from many host nations provided opportunities to major oil companies to consolidate again their petroleum market share.

The world oil market is the combination of various entities and organizations that produce distribute and sell oil and other petroleum products. The world oil market trades for oil products, any change in the world oil market affects the pricing of oil and other petroleum products. The world oil market can increase or decrease the price of oil and other petroleum products that are sold globally.