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>If the demand drops, the price goes up, leading to a further drop in demand, which drives up the prices This is nonsense. A drop in demand reduces prices. Yes
by ianferrel 9y ago
>If the demand drops, the price goes up, leading to a further drop in demand, which drives up the prices
This is nonsense. A drop in demand reduces prices. Yes, there are economies of scale in oil production/refinement, but they are dwarfed by the marginal cost of extracting the last barrel, which is what drives the global price of oil.
- uoaei 9y agoThis is a typical refrain, but doesn't account for second-order effects. At first, the price will drop. But the ongoing supply will pile up and need to be stored somewhere. Storing stuff is generally more expensive than not producing it. So production downsizes, and the little amount of product that ends up being produced costs more per unit than the larger-scale production process, and so prices go up. Also, prices will go up at the end of this transition due to scarcity and an ability to weasel money out of people who will pay more to hold on to what they're used to.