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According to Wendover on YouTube, producers have not been increasing production and rather aiming for higher profits.

https://www.youtube.com/watch?v=AQbmpecxS2w

⬐ tommiegannert

In the latest (few) Macrovoices podcast it's speculated that OPEC is actually out of capacity. It was mentioned that a Saudi minister also said something along those lines recently.

⬐ cbg0

Well, would you expect him to say "oh we can do it, we just want to make big profits"?

⬐ dmos62

That's monopolitic. If there were a producer that did not participate in the price-fix, and could scale his production up, he'd outcompete the price-fixers. I wonder what keeps this setup in place. Sounds like something you'd fight wars over.

⬐ usrusr

Think of it not as production, think of it as extraction, a conversion of crude safely stored in underground vaults to dollars. Holding back has the double benefit of rising prices now and increasing the amount you can sell in the future. The price-fix is not just about keeping it up, it also has an element of not outdoing each other in the "oil futures" speculation that would be implicit in not extracting now. No oil country (well, no oil country except Norway I suppose) would be happy to enjoy a dominant market share now at the cost of having to leave the market earlier than their peers. One might expect that all the talk about CO2 would shift the balance between those two sides within OPEC (and those that tag along?), but habits change slowly.

⬐ JumpCrisscross

> there were a producer that did not participate in the price-fix, and could scale his production up, he'd outcompete the price-fixers

New production is capital intensive. It’s currently difficult for oil producers to justify that to investors. The higher prices are only accelerating secular trends towards long-term lower oil demand.

⬐ thehappypm

Oil companies aren’t like software companies.

Every barrel they pump is a barrel they can’t pump later on. In fact, the cost of oil extraction generally trends upward over time as “easier” wells are exhausted and more expensive ones are tapped.

Sure, going full steam and selling every barrel available would make for a great 2022, but they may pay the price in the future if they suddenly are out of cheap oil

⬐ KptMarchewa

It differs wildly between producers. Saudi Arabia extracts oil for a few dollars per barrel, while it costs Russia 40-50$.

⬐ sieabahlpark

None

⬐ foota

I think you're being sarcastic, but this is basically what OPEC and others do.

⬐ refurb

OPEC only controls 40% of all supply and often accuses its members of breaking quotas.

Producers seek the profit maximizing price, not the highest price (those aren’t the same).

Would you rather sell 1,000,000 barrels at a profit of $10 per barrel ($10M profit) OR 1,200,000 barrels at a profit of $9 per barrel ($10.8M profit)?

⬐ midasuni

I’d set my price to the point where it’s cheaper than the competition - I.e if a country shift more towards nuclear or wind then I’d tempt them back with lower prices.

The correct solution for the consumer is to massively reduce the reliance on oil, but that requires long term planning which democracies and corporations are awful at.

⬐ geertj

> Producers seek the profit maximizing price, not the highest price (those aren’t the same).

Is this true when you only have fixed amount of the commodity? Wouldn’t players try to optimize the total NPV of all resources sold into the future?

⬐ refurb

Oil is not a fixed commodity. New reserves are discovered or become economically viable all the time.

⬐ dmos62

That's an interesting point.

⬐ blagie

I would rather sell 1,000,000 barrels at a profit of $10 per barrel:

- If I lowered prices to $9, my competitors would follow, and I'd likely sell only 1,000,000 barrels

- I have a finite supply of oil. If I sell 1,000,000 now, I'll have an extra 200,000 to sell at some point in the future. I'd like each barrel to cost as much as possible.

In other words, there are time dynamics. OPEC might only control 40%, but if everyone follows OPEC, everyone wins. If someone breaks from OPEC, other parties have an incentive to break as well.

There are many silent cabals, where parties don't conspire in any explicit way, except by signalling through market prices.

⬐ refurb

I would rather sell 1,000,000 barrels at a profit of $10 per barrel

Sure, and I'd love to have $1B, but that doesn't mean I'll get it..

Yes there are time dynamics - ramping up production, production delays due to maintenance, prices changes you can't predict. Nobody has a crystal ball.

And OPEC can't even control it's own members, so I'm highly skeptical anyone else follows them.

Humans are great at seeing patterns where there are none. Oil skyrocketed in 2008, everyone said it would never go down, then it crashed below $20. That doesn't seem like the kind of market where suppliers control the price.

⬐ lesuorac

> everyone said it would never go down

Citation needed.

The US Gov literally said the current (in 2008) high price are due to demand/supply mismatch and "most industry experts contend that oil resources are plentiful ... Drilling activity is at a high level" [1]. As in the price will go down.

OPEC only needs to control its members a tiny bit. Oil is sold on the margin and so a tiny demand/supply mismatch means a large price difference [2].

[1]: https://www.dallasfed.org/~/media/documents/research/eclett/... [2]: https://www.vox.com/2015/1/5/7493799/oil-prices-chart

⬐ refurb

Citation? Everyone I spoke with back in 2008? Sure anecdotal, but that's what my comment is basing it on.

Regardless, I think you just proved my point. Supply/demand determines prices not OPEC.

If OPEC controlled prices they wouldn’t have dropped 80% post-2008. Prices were so low that capacity was taken offline and some countries has serious financial difficulties.

That doesn't sounds like a monopolistic market.

Gas prices are going to stay high forever.

Why Gas Got So Expensive (It’s Not the War) https://www.youtube.com/watch?v=AQbmpecxS2w

⬐ Maursault

Informative, but the conclusion is a bit out there. Restricting supply to increase demand will only go so far. What happens when the prices are so high no one will buy? What happens when demand plummets because only EVs are sold? At some point, ICE gets pushed out of the consumer market. When consumers no longer need gas, gas prices will indeed plummet.

⬐ sitkack

I think you are being overly pedantic about the use of the word forever. The oil industry isn't restricting supply, only by a twisted interpretation could that be true. They aren't expanding supply to keep prices constant.

> What happens when the prices are so high no one will buy?

Then the market has decided that oil is over.

More context here:

https://www.youtube.com/watch?v=AQbmpecxS2w

⬐ 0des

Also, see: Enron, California power market manipulation

⬐ ZeroGravitas

Or the Tesla battery in Australia that paid for itself incredibly quickly, not because it was physically needed by the grid, but because it stopped gas power stations from dicking with supply and demand to maximise their own profit.

This video explaining why prices are so high might be valuable to this discussion: https://www.youtube.com/watch?v=AQbmpecxS2w

⬐ sofixa

I just knew it'd be that video. His content on the war in Ukraine, and pretty much everything, is very good.