Marathon Oil Corporation is an integrated international energy company engaged in exploration and production; oil sands mining; integrated gas; and refining, marketing, and transportation (Marathon Oil Corporation, 2009). The key to optimizing production and resource development is quick and accurate description of oil and gas reservoirs (Marathon Oil Corporation, 2009). For crude oil to be processed into gasoline, diesel fuel, and other petroleum products, it takes about four to eight days (Marathon Petroleum Company, 2009). The benefits of these reservoirs are higher success rates in discovery, drilling, and production activities (Marathon Oil Corporation, 2009). Also, the expertise of Marathon in reservoir characterization begins with seismic imaging, but it emphasizes integration of all geoscience, petrophysical, and engineering data into fully integrated solutions (Marathon Oil Corporation, 2009). Finally, the technology strategy of Marathon is focused on providing technical services that maximize the value of existing assets, develops and applies technology that enables access to new resources, and invests in emerging technologies that address challenges facing the energy industry (Marathon Oil Corporation, 2009).

Discuss the relationship between the retail price of gasoline and the price of crude oil.
The price a convenience store customer pays for a gallon of gas is dependent upon a number of factors including the cost of crude oil; the wholesale commodity price of gasoline; refinery processing costs; marketing and distribution costs; the retail station costs; and federal, state, and local taxes (Marathon Petroleum Company, 2009). Previous research suggests that gasoline prices respond asymmetrically to crude oil price movements by rising more quickly when crude oil prices are rising than falling when crude oil prices are falling (Brown & Yucel, 2000).
Economists have offered numerous explanations for the asymmetrical relationship of gasoline and crude oil prices (Brown & Yucel, 2000). The explanations include market power, search costs, consumer response to changing prices, inventory management, accounting practices, refinery adjustment costs, and the behavior of markups over the business cycle (Brown & Yucel, 2000). Although popular opinion seems to attribute the asymmetry to market power, Peltzman (2000) shows that price asymmetries arise independently of market structure. In addition, no formal theory relates market power to asymmetric response of downstream prices to changes in upstream prices (Brown & Yucel, 2000).
Only after the customers engage in a costly and time-consuming search to find the lowest prices are the gas stations forced to lower prices to a competitive level (Brown & Yucel, 2000). A factor slowing the search process is that the costs of an intensive search are likely to be much higher for most consumers than the corresponding gains from finding a cheaper price for gasoline (Brown & Yucel, 2000).
The consumer response to changing gasoline prices may contribute to the asymmetry between movements in crude oil and gasoline prices at the retail level (Brown & Yucel, 2000). If consumers accelerate their gasoline purchases to beat further increases when its price is rising, they will increase inventories held in automobiles and quicken the pace at which the price rises (Brown & Yucel, 2000). If consumers fear running out of gasoline and do not slow their purchases when its price is falling by as much as they accelerated their purchases when prices rose, the price of gasoline will fall more slowly than it rose (Brown & Yucel, 2000).
If the operation costs of an oil company rise sharply when inventories are reduced below normal operating levels, a reduction of upstream supply could lead it to raise its output prices aggressively to prevent a loss of inventories (Brown & Yucel, 2000). If an increase in inventories above normal operating levels has a relatively small effect on costs, the oil company could be less aggressive in reducing its selling prices when it experiences an increase in upstream supply (Brown & Yucel, 2000).
If oil supply shocks cause asymmetric movements in inventories, the asymmetry of price movements could be enhanced by first in, first out accounting (Brown & Yucel, 2000). First in, first out accounting means if inventories are lower when upstream supply is reduced, the oil company will sell the products incorporating the higher upstream price sooner (Brown & Yucel, 2000). If inventories are higher when upstream supply is increased, the oil company will sell the products incorporating the lower upstream price later (Brown & Yucel, 2000).
Refiners also face adjustment costs to changing their output or their product mix (Brown & Yucel, 2000). When crude oil supplies are reduced, refiners as a group have little choice but to reduce output quickly, which would lead to fairly quick increases in gasoline prices (Brown & Yucel, 2000). When crude oil supplies are increased, refiners do not necessarily have to increase output quickly (Brown & Yucel, 2000). Furthermore, refiners can adjust their output slowly when possible and delay the decreases in gasoline prices (Brown & Yucel, 2000). Finally, if markups vary over the business cycle, the difference between the crude oil and retail gasoline price could increase as overall prices rise (Brown & Yucel, 2000).

Explain what Marathon could do to keep the price at the pump the same without losing profits if the price of crude increased 10%. There are a few initiatives that Marathon is pursuing that can keep the price at the pump from increasing in conjunction with the crude oil increase. Marathon owns a 20% outside-operated interest in the Athabasca Oil Sands Project, which includes the Muskeg River Mine, the Scotford Upgrader, and over 215,000 acres of potentially mineable land in Alberta, Canada (Marathon Oil Corporation, 2009). The mining and oil sands interests of Marathon can provide a politically stable, long-life production for existing and planned heavy oil upgrading and refining operations (Marathon Oil Corporation, 2009). Once the expansion of Athabasca Oil Sands Project is complete, Marathon will have more production and upgrading capacity in the Canadian oil sands (Marathon Oil Corporation, 2009). Furthermore, this expansion will allow Marathon to secure oil production streams for decades (Marathon Oil Corporation, 2009). The integrated gas strategy is another initiative that Marathon is further developing. Liquefied Natural Gas is a key component in Equatorial Guinea (Marathon Oil Corporation, 2009). Also, Marathon has a joint venture with Alaska and Elba Island in the processing of Liquefied Natural Gas to further capitalize on the U.S. demand (Marathon Oil Corporation, 2009). Next, Marathon owns a 45% interest in the Equatorial Guinea methanol plant, which supplies customers in Europe and the U.S (Marathon Oil Corporation, 2009). Like Liquefied Natural Gas, methanol is an efficient way of developing and transporting stranded natural gas to growing markets (Marathon Oil Corporation, 2009). Methanol is used as an alternative fuel as well as other products (Marathon Oil Corporation, 2009).

In June 2010, President Barack Obama imposed a six-month deep water drilling moratorium. If the U.S. government prohibits deep water drilling off the U.S. coast, discuss how the U.S. oil companies can remain competitive in the U.S. market when over 35% of crude oil is currently sourced from domestic deep water drilling. President Barack Obama suspended deep water drilling in response to the recent disastrous oil spill in the Gulf of Mexico. This moratorium allowed the administration of President Obama to properly investigate the spill and implement new safety requirements. Therefore, the U.S. oil companies would employ different strategies to remain competitive. U.S. oil companies will probably deploy their resources to foreign suppliers with whom they have joint venture arrangements for projects. Next, U.S. oil companies may establish oil industry mergers, alliances, and acquisitions in order to cut costs, especially amongst the smaller companies. Also, U.S. oil companies may invest in renewable resources and explore alternative fuels.

References
Brown, S. P., & Yucel, M. K. (2000). Gasoline and crude oil prices: Why the asymmetry? Economic and Financial Policy Review, Q3, 23-29. Retrieved November 13, 2010, from www.dallasfed.org/research/efr/2000/efr0003b.pdf Marathon Oil Corporation (2009). 2009 fact book. Retrieved November 13, 2010, from http:// www.marathon.com/content/documents/investor_center/fact_books/2009_factbook_final .pdf
Marathon Petroleum Company. (Producer). (2009). The time it takes to provide america’s transportation fuels. Available from http://www.marathonpetroleum.com/the_time_it_
takes/index.htm