Tuesday, February 9, 2016
Why Do Oil Companies Continue To Produce Oil When Demand Is Weak?
Economist love the law of supply and demand. The law holds that supply will shrink in response to cuts in demand. Producers will cut supply rather than accept falling prices. Oil producers continue to pump oil despite falling demand. They continue to pump oil for a good reason. Producers typically finance production by taking on debt. The amount of debt that they hold has risen dramatically in the last few years. They are forced to pump oil and sell it at low prices in order to service their debt. They also need to take on additional debt at higher interest rates.