Set the price at $500/bbl, and I guarantee you production will increase.
Sure, but who will they sell it to at that price?
Ironically, just the opposite. High enough price will cause demand destruction and production will drop. No one will produce what they can't sell.
Still, your point is valid. Production is driven by price and demand. But there is a point where price drives down demand to a level where production has to decrease. It's a boom and bust pendulum swing. In the 80s when the removal of price controls sparked a spike in production the subsequent glut collapsed prices ($10 a bbl) and suppliers were capping wells. Gluts are caused by overproduction or collapse in demand. $500 bbl will cause the latter.