Assemblyman Fred W. Thiele Jr. has long monitored the prices charged for gasoline on Long Island and elsewhere in New York State. He says what exists is a “rigged pricing system” — with the oil industry charging whatever it can get away with, depending on the area.
“For years, I have monitored South Fork gas prices and the higher prices that the South Fork and other regions of the state pay simply because of the practice of zone pricing,” Thiele said last week. “Zone pricing is nothing more than price fixing. Big Oil distributors are setting prices based solely on geography, not cost.”
This continues to be the situation although, suddenly, the price of gasoline has plummeted — on Long Island and elsewhere in the U.S. and around the world. Seemingly out of nowhere, we now have gasoline in the U.S. at about $2 a gallon.
Yet the price of gasoline is still higher in that part of Thiele’s district on Long Island’s South Fork — East Hampton and much of Southampton Towns—which the oil industry considers affluent. Other parts of Long Island and the state where the oil industry figures it can sock it to motorists are similarly hit.
“Even with lower gas prices today, the South Fork still pays more,” Thiele, of Sag Harbor, said. “It is all part of the same rigged pricing system. Big Oil sets wholesale prices locally based on geography, but we are seeing lower prices internationally because the world is temporarily being flooded with cheap oil.”
Thiele has tried again and again to do something about the situation. “I have sponsored legislation for years with the assistance of the state attorney general to outlaw this practice,” he said. “It has passed the Assembly by wide bipartisan margins, but has not even come up for a vote in the State Senate.”
Meanwhile, he regularly issues reports on the price discrepancy, listing the charges of gasoline at various locations.
Historically the pricing system has been rigged globally when it comes to oil. And that brings us back to how gas has suddenly dropped to $2 a gallon.
For nearly 40 years in my Investigative Reporting course at SUNY/Old Westbury, I lecture the students about one of the great journalistic accomplishments of the Muckraking Era a century ago: Ida Tarbell’s expose on John D. Rockefeller’s Standard Oil Trust. She documented how Rockefeller and his trust succeeded in controlling the oil market in the U.S. and internationally, setting production quotas and forcing out competition.
With discoveries of oil in the Middle East in the 1930s, and with offshoots of Standard Oil deeply involved, the Arabian American Oil Company — Aramco — was created in Saudi Arabia in 1944. With Saudi Arabia as its key member, the Organization of the Petroleum Exporting Countries — OPEC — was formed in 1960.
The steep drop in the price of oil is largely an attempt to quash one of the most odious of energy processes — fracking — by a most odious of energy organizations, OPEC.
Hydraulic fracturing — or fracking — has in recent years caused a revolution in petroleum extraction. Using a new technique to split underground shale formations, it has vastly expanded gas and oil output in the United States. But it is a messy and polluting process. Massive amounts of water and 600 chemicals are shot into the ground under high pressure to release the gas and oil. The gas from fracking wells leaks into underground water tables causing serious contamination.
Fracking, however, is a relatively expensive process — about 10 times more costly than the $5 to $6 per barrel cost of drilling oil from conventional wells.
By letting the price of oil drop, OPEC has been applying financial pressure on the fracking industry. Oil in much of 2015 went down to $60 a barrel making fracking a problematic undertaking economically.
As a result, there were reductions in and cancellations of numerous fracking operations. Still, the frackers cut costs in seeking to survive. And that has resulted in even greater OPEC pressure—the drop in price of a barrel of oil to less than $40 — as low as $35 — in recent weeks.
Oil industry analysts have pointed to other factors, too, including what they describe as U.S. and Saudi Arabia seeking to hurt Russia, dependent on oil production, and also damage major oil producers Iran and Venezuela.
“There are many theories on why OPEC wants to injure the Russians, Iranians, or the fracking industry,” Thiele said. “Regardless, it is evidence of the same broken system which is not market-based, but where a few fix the prices for the many.”
The bright spot for low-priced gas on is Long Island — Riverhead. That’s where I try to go for a fill-up.
How long will $2 a gallon gas last? As the secretary-general of OPEC, Abdulla al-Badri, has said, “I think maybe they [have] reached the bottom and we [will] see some rebound very soon.” Then he said, the price of a barrel of oil might skyrocket up, to “more than $200” a barrel.
Karl Grossman is a veteran investigative reporter and columnist, the winner of numerous awards for his work and a member of the L.I. Journalism Hall of Fame. He is a professor of journalism at SUNY/College at Old Westbury and the author of six books. Grossman and his wife Janet live in Sag Harbor.
Suffolk Closeup is a syndicated opinion column on issues of concern to Suffolk County residents.
The survival of local journalism depends on your support.
We are a small family-owned operation. You rely on us to stay informed, and we depend on you to make our work possible. Just a few dollars can help us continue to bring this important service to our community.
Support RiverheadLOCAL today.