After a little background reading about OPEC, I really saw the Big Oil cartels in a new way.  First, it is clear that they are purposefully drilling at below capacity and or selling at so that they can keep a shortage and hike up prices more than the competitive market would allow if there were a higher supply.  (Before this week's lesson, I have to honestly say I did not fully understand why OPEC was doing this.)  Since the market is mostly inelastic in the short-run, the demands remain the same and countries essentially must pay the price to have oil (I see there are other posts about elasticity so I'll leave that alone for this post).  OPEC countries realized the inelasticity of the market after they placed an embargo on the US for the US defense of Israel in a Middle-East conflict.  Realizing the power they had over market prices, those Arab countries formed a cartel in the early 1980s that literally dominated the market, and used shortages to essentially charge whatever price they wanted.  

However, the market since then has become more competitive as more suppliers entered the market, moving the supply curve to the right and thus driving down prices (although supply is still short of demand).  With OPEC in check a little, the market is now more competitive, which is good.  Which is why, on a strictly economic basis, drilling for oil in Alaska would make sense as far as lowering prices for oil.  Even at the current prices which are relatively low, however, world supplies are kept short.  The market proving to be elastic as countries like India continue to develop mean that oil-producing countries must still step up production if they want to keep a share of the market.  OPEC says they're drilling at much higher capacity now than ever before.  Although keeping the supply low would still help prices, they would lose their market share.  More increases in the supply curve are now being balanced by increases in the demand curve, so prices overall are pretty stable and relatively more fair than when OPEC was completely in charge.  However, no oil producer wants to cut themselves out of the profits that can be made through the short supply, so they have to constantly be looking at demand and then falling short of that.

A little story about price gauging I read in Mankiw's textbook Principles of Applied Economics on how price gauging has its benefits got me thinking: Maybe this Big Oil/ OPEC strategy is not actually that bad.  It means that there will be enough oil for those that really need it and keeps demand in check for this valuable non-renewable resource.