What does "exhausting excess production capacity" mean?

Question

In terms of oil.

Answer 1

it means getting rid of the dead weight, down-sizing ???

Answer 2

its another means of limiting capacity in the rtefineries to increase prices by claiming they can't refine as much oil as they are recieving. in terms of manufacturing, it means that they can't produce beyond a given point. it can occur when excess demand creates a need for additional manufacturing but has not the means to meet the higher need for capacity.