New York Attorney General Letitia James launched a wide-ranging investigation Thursday into whether the oil industry has engaged in gas price gouging, a person familiar with the matter told CNN.
The probe is believed to be the first in the nation directed at the industry for the ongoing bout of high pump prices and comes as some Democrats question whether oil companies are taking advantage of consumers.
The New York investigation is broad, examining the state’s entire supply chain, from production to pump, CNN has learned.
The probe will focus not only on major oil companies that supply oil to the state but refineries that turn crude into gasoline as well as independent operators of pipelines and terminals, the source said.
New York’s price gouging statute gives authorities wide power to investigate entire supply chains, covering all actors including manufacturers, retailers, distributors and shipping firms.
According to the attorney general’s website, state law bans “unconscionably excessive” prices, including both “unconscionably extreme” prices and prices set through “unfair leverage or unconscionable means.”
It’s not clear what evidence, if any, state authorities have of potential price gouging.
“Soaring gas prices are forcing working New Yorkers and low-income families to make difficult decisions on whether to pay bills or put food on the table,” James said in a statement to CNN. “Price gouging is unfair and illegal and my office is determined to make sure it doesn’t happen in our state.”
Rockets and feathers
Prices at the pump take their cues from the oil market.
Oil prices have surged over the past two years for a variety of reasons, including strong demand as Covid subsides and the slow return of US and OPEC supply taken offline at the onset of the pandemic. The war in Ukraine sent oil prices skyrocketing last month to the highest level since 2008, driving gas prices to record highs.
The New York probe comes just weeks after President Joe Biden demanded a faster drop in gas prices as oil tumbled from its post-invasion highs.
Biden called out the tendency for gas prices to go up like a rocket when oil spikes, but only drop like a feather when crude crashes. The White House drew attention to a decades-long trend, known as rockets and feathers, that critics argue hurts consumers by failing to pass savings along to drivers.
The focus of the investigation, at this stage, is on understanding price-setting further up the supply chain and not necessarily at the retail-level, the person familiar with the matter told CNN.
Tom Kloza, global head of energy analysis at the Oil Price Information Service, looked at pricing data from more than 5,000 gas stations in New York and said the aggregate data so far this year “doesn’t show anything unusual.”
“There are always a few bad seeds who have high prices in tony little communities where convenience is everything,” Kloza said in an email. “So the AG may find a few stations, but the overwhelming number of operators are not likely to fall into whatever loose definition of ‘gouging’ the politicians choose.”
Kloza added, “To me, gouging is rampant at Yankee Stadium. How much do they make on a hotdog and a bottle of water?”
NY AG asked public for receipts and photos
After Biden banned US imports of Russian oil last month, the NY attorney general warned oil companies and gas stations that price gouging is illegal.
In a statement at the time, James urged people who experience fuel price gouging to contact her office to report dates and times of price increases and to provide copies of sales receipts as well as photos of advertised prices. James vowed to do “everything in our power to protect consumers.”
The American Petroleum Institute, the trade group that represents the oil-and-gas industry, said in a statement to CNN that prices at the pump are a function of increased demand, lagging supply, “geopolitical turmoil and policy uncertainty from Washington.”
“This is an industry of price takers, not price makers, and countless investigations throughout history have shown that changes in gasoline prices are based on market factors,” said API spokesperson Bethany Williams.
However, the industry has previously defended itself against accusations that it would seek to capitalize on Russia’s invasion of Ukraine. After Biden warned the oil industry in late February not to “exploit this moment,” API CEO Mike Sommers told CNN, “Our companies would never take advantage of this kind of situation.”
“Ripping the American people off”
Critics of the oil industry often note the massive profits companies are hauling in and the vast sums of money being lavished on shareholders in the form of dividends and buybacks.
“During this Russian war, you are ripping the American people off and it must end,” California Democrat Rep. Raul Ruiz told Big Oil executives during a hearing last week.
However, it’s worth noting that oil companies lost enormous sums of money in 2020 when crude crashed below zero for the first time ever. Dozens of oil companies went bankrupt during the downturn.
Still, officials in some states have recently urged probes into potential price gouging.
In early March, Massachusetts Secretary of the Commonwealth Bill Galvin called for an investigation into whether oil and gas companies are price gouging.
“They have a right to profit. They don’t have a right to an exorbitant profit,” Galvin told WBZ-TV at the time.