Sample Research Proposal on Oil Industry Returns and Market Risk

This research will seek to achieve the relationship between risks and realized stock index return in the presence of oil and exchange rate sensitivities for the Asia-Pacific region. The proposal will amicably show the sensitivity to local currency oil price changes and which countries will have problems in a short run period. – To be able to provide enough basis and foundation of the study through such methods and its applications – To evaluate sources of oil industry returns and market risks through primary and secondary data –To identify crucial points as to where oil prices have stronger assumptions of market risks How can be oil industry returns and its market risk affects the oil price situations and its profit rates? Is there any difference in determining contributing factors in terms of addressing oil rates and its exchange rates? Does downstream and upstream oil industry returns provide negative indication to such risks involved? How can market risks in the oil industry be controlled and executed so that the oil industry returns will remain in the stable state? How can oil producing countries be affected by such changing phenomena of oil prices in the market? Consider positive and negative effects.   Background High prices for oil have reduced consumers' purchasing power and raised costs for businesses while providing billions of dollars to the oil industry and oil exporting countries. The industry's increased revenues have led to record profit levels. As the 109th Congress engages in oversight of recent broad energy legislation which aims to increase the domestic supply of crude oil to mitigate oil price increases in the longer term, another key factor in determining increased supply is how oil companies decide to allocate their profits between shareholder returns and investment in oil production (Cited from, Tang and Hammoudeh, 2002; Tang and Shum, 2003). However, the greatest increases have been in the downstream in such segments of the industry. These increases in profit are apparent whether the major integrated oil companies, the independents, or refiners are considered, lending some credence to the viewpoint that industry profits are the result of factors beyond the elevated price of crude oil. Historically, the current combination of high oil prices and high profits has been seen before, and periods of low prices and profits tended to follow.   The Upstream Sector For the upstream players, the linkage to international crude oil prices implies volatility in earnings. While a rise in international crude oil prices would translate into a positive contribution to the bottom line, a decline in the international prices, on the other hand, would exert pressure on the margins of all upstream companies. The national oil companies would be protected from the downside risk by the floor price fixed by the government. But if the floor price is removed and the international oil prices drop to levels lower than the cost of production, even the national oil companies would require government intervention to protect their bottom line. What aggravates the risk further is the fact that declining oil production and stagnating reserves dictate that the upstream companies venture into exploration areas that have high-risk-high-return profile. The Downstream Sector A fluctuation in the international prices of oil product translates into a variation in the domestic margins as margins have increased following higher duty protection and linkage of crude and product prices with international prices. However, on the flip side, the expected surplus in the domestic market may limit this margin expansion. The other factors influencing the profitability of Indian refineries in the deregulated scenario would be refinery configuration, operating costs, and refinery location. The ownership of marketing and distribution infrastructure would be of strategic importance and would enhance profitability as the marketing sector is decontrolled. While the profitability of the integrated players would be higher and more resilient to economic troughs, the pure refining companies would find it difficult to sustain profitability in a decontrolled scenario. Accordingly, the pure refining and marketing companies are expected to be merged with the oil majors. A full decontrol of the marketing sector is likely to lead to severe competition among the various players in the industry, and a greater focus on branding and product differentiation. Given the changes taking place, expects the strategies of downstream players to focus on: strengthening import infrastructure; enhancing scale of operations; upgrading processing facilities; implementing environmental projects; strengthening marketing and distribution infrastructure and promoting brands; entering into strategic alliances; venturing into other areas of the energy value chain for optimizing the risk-return profile and restructuring the organization.       The relatively high profit levels earned in refining and marketing suggest that conditions in the petroleum products markets contributed to earned profits above and beyond the effect of higher crude oil prices. Key factors in these markets included tight refining capacity and low inventory levels. Mergers, acquisitions, and asset sales may also have changed the relative profit positions of many firms in the industry. All of these factors have been influenced by investment decisions in the oil industry. Firms in the oil industry are likely to use their recently earned profits in a variety of ways. They are holding record cash balances, buying back their shares and increasing dividends (Cited from, Tang and Hammoudeh, 2002; Tang and Shum, 2003). Furthermore, several merger and acquisition activity in the industry again appears to be on the rise. In addition, the major oil companies are investing in a variety of energy related projects, although not necessarily oil, including liquefied natural gas and gas-to-liquids technologies. These projects tend to be international in scope.  The profit margin on sales uses the total sales revenue of the business as the base and expresses profit, or net income, as percentage of sales revenue. Profit rates expressed in this manner can answer questions as to whether increasing sales become more or less profitable as the business grows. This profit measure can also lead analysts to basic questions as to whether the businesses' prices were too low or too high, or whether adequate cost controls were in place as the business expanded. Profits based on assets, or the return on assets, divides profit, or net income, by the value of the total assets of the business. This measure allows analysts to determine how well management uses the asset base of the company to generate profits for investors. If the asset base represents the tools available to management to carry out business activities, the return on assets gives an indication of how effective management has been in using those tools. A particular rate of profit might be viewed as favorable if it was embedded in a trend of rising profit rates, or unfavorable if embedded in a trend of falling profit rates. Time trends might also help to identify correlations between profit and other factors which influence profits. The approach is appropriate for prospective investors because they may have less interest in what business activity a firm undertakes, than the results of that activity in terms of profits earned and risk borne. In many cases, profits can be expressed in comparison to an index of firms designed to show average, or market, returns and risk. Accordingly, an increase in risk exposure during a "down" market has significantly more negative impact on the sectoral returns than a decrease in this exposure during an up market which has been segmented from the world markets by protective government regulations. Thus, stock market aggregation may mute equity index sensitivities to risk and global factors and may hide causal relationships, making stock or sector selections more difficult. Therefore, there is ample need to revisit the findings reached at the general index level by examining the responsiveness of sectoral index returns. Based on availability of sectoral data, we are only able to examine six equity sectors' sensitivities to three global factors: oil price, the world capital market and US short-term interest rate, and to the domestic interest rate. These sensitivities can then be compared to sectors' own systematic risk sensitivities. Thus, for example traders and investors in the Saudi market can make more informed decisions in terms of sector section and switching when significant shocks affect sectoral risk and the domestic and global factors involved. Globally, the oil sector is dominated by certain large private companies who have presence in almost all segments of the oil value chain. Historically, oil price has been the single most important challenge facing the global oil industry. The problem is all the more acute as the large private companies account for only a small share of world oil production even as oil prices remain unpredictable and prone to wide fluctuations. Given this backdrop, global oil majors are now increasingly benchmarking their production costs against the oil production costs of the OPEC – Organization of Petroleum Exporting Countries and increasingly relying on technological innovations and other cost cutting measures to lower their own production costs (Cited from, Tang and Hammoudeh, 2002; Tang and Shum, 2003).     Method The research design to be used is the research process onion as the study will be in case study and descriptive manner and thus, it will conduct both qualitative and quantitative research. The case study method will then intend to present facts concerning the nature and status of a situation, as it exists at the time of the study (Cited from, Creswell, 1994). In addition, such approach tries to describe present conditions or events as based on the reactions of the research sample (Cited from, Creswell, 1994).         Based on the literature reviewed in this paper, wine marketing in general and consumer perception towards wine purchase are complex issues. Market value come in many groups and some prefer other brands from the others, while some prefer origins, price and other factors. In the case of oil industry, it seems that the problem would be the knowledge of oil sectors on such products as well as oil price preferences in the global market. Basically, there is much to learn about index returns and market risks of oil industry as the proposal might just as well present findings that are new in the field of wine marketing study.  The setting will be in Greece, perhaps on one or two areas where oil price risks and other assumptions is prevalent. The study will answer questions and prove hypothesis about the relationship between risks and realized stock index return in the presence of oil and exchange rate sensitivities for the Asia-Pacific region.  Literature studies show that oil industry as linked with unstable returns and risks denote such complex issue that requires deep investigation. Thus, ethical considerations will be ensured to the respondents. Confidentiality of information as well as responses will be assured and the research process will be scheduled and organized thoroughly to avoid conflicts in time and schedule. The research strategy will be in form of case study analysis of such oil companies in the Asia Pacific domain in order to obtain a more suitable data for the realization and completion of the study at hand. Resources and Timescale Furthermore, appropriate data will utilize resources from Questia, Blackwell Synergy as well as EBSCO journals and peer reviewed articles and several useful and related books as it will be utilized well prior to the beginning of the research. There is the need to develop such returns and market risks analysis in forms of tables and or illustrations to support the initial basis of the study along with theories and concepts needed in order to analyze value of research implications and significance. Thus, the need to apply certain quantitative and qualitative data in drawing out core factors that has influence the oil industry leading to appropriate recommendations and conclusions       Activity Month         DEC JAN FEB MAR Search for Related Literature         Selection of the  Topic         Definition of the Problem         Development of the Objectives         Selection of Methodology         Check the availability of resources         Verify the accessibility of the resources         Write the draft of the proposal         Prepare interview schedule         Secure adviser's approval         Do the needed revisions         Test research tool validity         Select the study sample         Conduct research proper         Administer research tools         Do the assessment techniques         Gather and analyze results         Do the necessary data presentation         Interpret findings         Preparation of the final report         Formulation of conclusions and recommendations         Preparation of the table of content, appendices         Editing and Final Formatting         Printing