Good Times Run Out for Sand Producers
by: Dan Molinski
Jan 02, 2015
Click here to view the full article on WSJ.com
TOPICS: Oil Markets, Production, Supply and Demand
SUMMARY: Sand producers have enjoyed strong demand thanks to hydraulic fracturing, but analysts say not all of them are ready for the downturn that will come with the plunge in crude-oil prices. Related article: U.S. Steel said it will idle plants in Ohio and Texas and lay off 756 workers, becoming one of the first big U.S. industrial casualties of the recent collapse in global oil prices.
CLASSROOM APPLICATION: The article offers a case of a derived demand for an input into a production process. Students can use supply and demand for sand to evaluate the effect of a decrease in oil prices on the demand for sand. Students can also evaluate the labor and extraction rate decisions made by sand mining companies.
QUESTIONS:
1. (Advanced) What is "derived demand"? Is the demand for sand derived from the demand for oil?
2. (Introductory) What is the effect of a decline on hydraulic fracturing on the equilibrium price of sand?
3. (Advanced) How are sand-mining companies responding to an anticipated decline in hydraulic fracturing?
by: Dan Molinski
Jan 02, 2015
Click here to view the full article on WSJ.com
TOPICS: Oil Markets, Production, Supply and Demand
SUMMARY: Sand producers have enjoyed strong demand thanks to hydraulic fracturing, but analysts say not all of them are ready for the downturn that will come with the plunge in crude-oil prices. Related article: U.S. Steel said it will idle plants in Ohio and Texas and lay off 756 workers, becoming one of the first big U.S. industrial casualties of the recent collapse in global oil prices.
CLASSROOM APPLICATION: The article offers a case of a derived demand for an input into a production process. Students can use supply and demand for sand to evaluate the effect of a decrease in oil prices on the demand for sand. Students can also evaluate the labor and extraction rate decisions made by sand mining companies.
QUESTIONS:
1. (Advanced) What is "derived demand"? Is the demand for sand derived from the demand for oil?
2. (Introductory) What is the effect of a decline on hydraulic fracturing on the equilibrium price of sand?
3. (Advanced) How are sand-mining companies responding to an anticipated decline in hydraulic fracturing?
Reviewed By: James Dearden, Lehigh University
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