National / International News
This is a busy time of year for the Goodyear tire store and garage in McLean, Virginia. People want a tune up before heading out for the holidays, maybe want to pick up a set of tires.
Store manager Eddie Adiyeh has been selling tires for almost 30 years, so he should know: Do tire prices normally go down, along with oil prices?
“I don’t remember them going down when the prices went down," he says. "But I remember them going up a little bit when the oil went up.”
Goodyear owns Adiyeh’s store, and sets the prices. So I called a Goodyear spokesman, Keith Price, and asked him: will tires get cheaper?
His response: “I’m not able to comment or speculate on what might happen to the price of tires.”
But Price did say it takes a while for the tire to go from factory to warehouse to distributor to store. He figures tires being made now, with the cheaper oil, should be in stores this spring.
So will they be cheaper then?
“It’s not entirely black and white,” says Nicholas Mitchell, a senior vice president and research analyst at Northcoast Research who follows Goodyear. He says oil makes up about a quarter of the cost of synthetic tires, the kind most consumers buy. Mitchell thinks competition among tire manufacturers will push down prices.
“Someone will move first and try to lower prices to drive market share,” he says.
But here’s why it’s not black and white: With gas prices down, we’re driving more, and wearing out our tires faster. If demand for tires rises, Mitchell says, prices won’t fall as much.
The oil boom in Texas has ripple effects that go beyond the cost of gasoline. Kai Ryssdal talked with commercial grain farmer Curt Mowery of Mowery Farms in Rosharon, Texas, to find out how oil is reflected in his business.
As a commercial grain farmer, Mowery estimates that 50 percent of his costs circle around oil. Some examples include the chemical costs on some of the crop protectants, containers and transportation from getting grain from the field to the processor. “Everything’s tied to oil that we do in our business,” he says.
As the cost of oil goes down, Mowery might see savings in 2016, but he doesn’t believe the consumer will see savings for a while. “The price will go down a lot slower than the price will go up," he says.
A barrel of crude oil is a “convenient measure,” says Eric Smith, associate director of Tulane University’s Energy Institute. “It’s 42 gallons because that’s what John D. Rockefeller put it in – old beer barrels, back in the 1890s.” Today, oil moves in pipelines, tanker ships, barges and railcars to get from the oil fields – whether in Saudi Arabia, Nigeria or North Dakota – to the refineries.
Transportation only constitutes a small fraction of the barrel’s cost, according to economist Rayola Dougher of the American Petroleum Institute, the industry trade group. Most of the cost of oil can be attributed to exploration, drilling and pumping.
“Finding the oil is a very involved process,” says Dougher. “Onshore it can take $19 to $20 a barrel, but it could be twice to three times as much offshore.”
In the Bakken shale oil fields in North Dakota, which are pumping out a lot of high-quality light sweet crude (a similar grade to the benchmark West Texas Intermediate), producers can still make a small profit with crude in the $55-a-barrel range, after subtracting the costs of exploration, production and transportation, Smith says.
“You’d probably go down to $30 before somebody shuts in a well. They might not drill a new one. But they wouldn’t stop producing the old one until the price got below that cost.”
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