"Branson plans £1bn refinery to combat cost of jet fuel"
Join Date: Dec 1999
Location: UK
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Your signature sure smells of burnt fuel. So lets see.
Anyway - back to topic:
Ok fair enough statement except you contradict yourself after the first clause. If one controls output one controls price, with exterior factors aside like wars etc
They do not and cannot manage price directly - and the price is no different in Nigeria than it is in Central Asia - the output changes will ensure greater or lesser supply to indirectly change the price, else the demand flows will correct that price to match that in the global market.
For example if Nigerian oil were at all cheaper (corruption aside), then demand for it would be so high that its price would be forced upwards through demand such that it ultimately matched the global price, unless the vendors were idiots, which they patently are not.
OPEC do not control all global output, therefore they cannot control global price. Equally they do not control demand flows, refining capacity, and trading activity, otherwise they would indeed control price. All they can do is to cut off supply to indirectly ensure that prices rise as demand is unmatched, yet the lost revenue due to demand reductions at such high price would be to them - and indeed was in the 1970s - too much to bear in the long run, such that output had to rise again to a sustainable level.
The reason I say that they do not control global output is that much oil is non-OPEC, and even OPEC countries cheat on the agreements to produce more, since cartel behaviour cannot be enforced, and where greater revenue can be obtained by selling more then it is. Last time it was reported in the Economist, it was ~10% greater output than the agreement for OPEC countries.
About selling fuel at market price is ok if your market share is biggest like SHELL and B.P. etc, but if you want to sway the market share towards you, you need to undercut prices, this is Business Principles 101.
Why do you think the actions of OPEC (restricting output), and what you suggest (undercutting) are contradictory?
Put it this way, my employer could undercut PWC, E&Y and KPMG for the audit market, but there isn't a chance that we could supply the audit staff for those audits as business would flood in the doors too quickly to recruit, train and retain staff.
Branson has not got the technical expertise, supply of oil, industry contacts, infrastructure, sufficient demand from Virgin group airlines or anything else to be any better than BP at their own industry. It is a marketing gimmick, none different from trying to fly Concorde at Virgin, unless it were to be a marketing agreement, which is worthless to him since Virgin Refineries would not sell to the street, but to other industries who care little about the name. In an industry of thin margins, where profits are buily on volumes of those thin margins, what hope could he have to build one refinery and get fuel cheaper for Virgin. He would not have the critical mass to lower the cost base sufficiently.
Refineries are very expensive things to build
Paxing All Over The World
Thread Starter
Mr B is not actually very innovative or inventive - but he is very good at rebranding stuff.
He tends not to re-brand. He did this with Virgin Express in Belgium and went on record to say that he regretted it. Once an organisation is in place, even if the old management has failed and the company is bought from the receivers, then the original attitude clings to the wreckage. Starting afresh is the best way (he said).
He did purchase part of a railway company in the UK and experienced similar problems, not to mention the hideous system that the Conservative govt put in place. However, having used his trains to Scotland a few times, (and within the last 10 days) I can say that I would not hesitate to use them again.
(No, I have never been employed by a Virgin company, I am just a satisfied customer.)
