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Yes it does, because if you can't bring it to market fast enough to meet demand, prices will spike reducing demand. When the prices spike, oil companies are wi
by jcnnghm 17y ago
Yes it does, because if you can't bring it to market fast enough to meet demand, prices will spike reducing demand. When the prices spike, oil companies are willing to spend more resources to extract oil as quickly as possible in order to sell off their reserves at the highest possible price. This inevitably leads to significantly more supply than demand, and falling prices. At which point capacity is taken offline to prevent oversupply, and the cycle repeats.
If prices are high enough, the market will find a way to extract their reserves fast enough. There could be temporary short falls, but they'll be just that. Should the price remain high, it will give new entrants an opportunity to compete.
- ghshephard 17y agoMicro-Econ Nit: Increasing prices do not impact demand, rather they have an impact on quantity demanded. Availability of more affordable substitutes such as electronic cars will effect demand. The argument that quantity supplied of petroleum will continue to rise fails to take into account that at a certain price point, substitute sources of energy make more economic sense.