There's a second effect. Companies that are near 100% indebted (and a dropping oil price will seriously lower their expected value, therefore getting them far c

There's a second effect. Companies that are near 100% indebted (and a dropping oil price will seriously lower their expected value, therefore getting them far closer to their debt limits even if they don't actually loan anything). Such companies, how do they respond to price shocks ? You have capital invested, and debt to pay back. But capital is a sunk cost, the debt won't disappear because you stop pumping. Therein lies the rub. So there's 2 options: 1) you can stop working, stop producing, and use cash on hand (cashflow which they have spent years minimizing) to pay down debt. As soon as this cash on hand is gone, it's over. 2) they can keep working, and keep selling. Doing everything they can to increase revenue just a little bit (ie. selling more oil, making prices drop). This way the cash keeps flowing, even if they become less and less likely over the long term to pay back their debts, but they don't go under right now Which would you pick ? Keep in mind that price of oil will of course go back up at some point. Wouldn't you want to delay the point where you have to give up, in hopes of delaying it past the point where prices recover and you don't have to give up at all ? Of course not all companies will succeed at that. But the immediate result of oil companies becoming unprofitable due to price fluctuations is ... more oil getting pumped up. It makes sense if you think about it even if it is thoroughly counterintuitive.