Production and operations Management Assignment

Production and operations Management - Assignment Example In addition, crude oil is also used for wide varieties of other purposes. The fractional distillation of gasoline produces an output known as gasoline. Gasoline is mainly used as fuel in internal combustion engines. Gasoline is traded in regional market; whereas, crude oil is the part of global market. Generally, the price of a commodity increases as demand increases (there are some exceptions to this rule) (Oxford). Since crude oil is a non-renewable energy source, its demand will not fall regardless of its price variation. Hence, when the demand for crude oil increases, its price also increases. Crude oil prices have a direct impact on the gasoline prices as crude is the major raw material used in the production of gasoline and other petroleum products. â€Å"Crude oil accounts for 55% of the price of gasoline while distribution and taxes influence the remaining 45 %† (Mazeel, 2010, pp.106-107). To illustrate, one barrel of crude oil contains 42 gallons of oil. If the price for one barrel of crude oil is $75, raw material worth $1.78 is required to produce a gallon of gasoline. This figure does not include transportation and other process charges. In total, when the global demand for crude oil increases, there will be a proportional increase in the retail price of gasoline also. When the global crude oil production is decreased by 10%, the crude oil supply might fall and this situation would probably result in a rise in crude oil price. Under such circumstances, domestic oil retailers may be forced to raise their prices in order to avoid loss. If Marathon adopts effective business strategies, the company may keep the price at the pump the same without losing profits even in times of a decline in global crude oil production. In order to achieve this goal, the Marathon has to acquire materials at reduced rate by researching different markets because a decrease in cost of production is