Oil and Gas Sector’s Porters Analysis

Threat of New Entrants – Oil industry generally has a low threat of new entrants. Reason for this is
that for setting up a petroleum company in a particular region requires a high capital investment. Setting
up extraction units and building global supply chain structures requires a great deal of investment.

Therefore, new entrants find it difficult to develop business in the oil industry.

Aside from the financial barrier, newcomers must contend with the existence of established large-scale
petroleum corporations as well as the public oil company.

The fluctuating oil prices poses another risk to the business in petroleum sector, making the industry
more difficult to enter for new companies.

Bargaining Power of Buyers - In the case of the oil industry, customers include those who
purchase diesel, petrol, and other petroleum derivatives.

The oil producers regulate the pricing of gasoline and petroleum products, leaving customers
with little negotiating power.A change in oil prices necessitates a change in the price of gasoline
and diesel around the world.

lack of credible substitutes to oil and gas products and the actuality of high

switching costs to other alternatives, the bargaining power of customers might be low.
Bargaining Power of Suppliers - The bargaining power of suppliers is not strong to the
degree that it affects firms performance in a significant way. Suppliers in the oil industry are
businesses that produce oil from oil fields as a natural resource. These businesses wield a lot of
influence over the industry's dynamics. The Government can also exert some influence on
corporates decisions.

Competitive Rivalry - There are some indications that competition in the oil and gas industry is
fierce, owing to the high stakes involved. It is also observed, the industry sales and residual
income are very sensitive to economic situation. A few oil and gas companies are Shell,
Conocophillips , Chevron, Exxon Mobil etc. who have significant stakes involved in the oil
producing regions on a global scale. Because of the existence of a few large-scale companies,
the oil industry is highly competitive. Profit margins are difficult to sustain as a result of this
intense competition, as businesses must adapt their pricing to that of competitors as well as
government regulations.