The oil and gas industry can be divided into two types of operation: upstream and downstream:
- Upstream operations are concerned with the production of crude oil and natural gas. They also include exploration and transportation.
- Downstream operations include refining and distribution of refined oil.
Upstream companies are heavily exposed to the risk of changes in oil prices. The risk goes both ways (profits will rise if the oil price does, as well as fall if the oil price falls). Changes in prices for downstream companies' supplies are usually passed on to customers. Their profits are less effected by changes in oil prices.