Rising gas prices due to market, not cap

THE ISSUE The average price for a gallon of gas has reached $3 for the first time since October.

GASOLINE prices are expected to rise by double digits next week in Hawaii, but motorists would be mistaken to conclude that the price cap is failing to work. The price increase will reflect market conditions on the mainland, unlike the days when the lack of a competitive market in the islands allowed prices to become static, soaring high above mainland pump prices with little or no fluctuation. Legislators would be derelict in repealing the cap.

State lawmakers are divided about whether to abandon the caps or impose them only for periods of two weeks after prices exceed the "fair price indicator" -- the same level as the cap -- two weeks in a row. Oil companies would only prove the effectiveness of price caps by exceeding the price indicator.

Gasoline prices have skyrocketed nationally in recent weeks, reaching an average of $2.695 a gallon this week for regular, nearly 43 cents more than the average this time last year. Pegged to prices in New York, California and the Gulf Coast, Hawaii's average has jumped during the same period from $2.47 to $3, an increase of about a dime more than nationally.

The price increases have been caused mainly by a doubling in the price of crude oil during the past two years to the current level of $68.70 a barrel. Oil accounts for about 60 percent of gasoline costs. Refining and marketing costs have remained about the same.

One factor might be the profit made by refiners. In the Los Angeles area, refiners are averaging a gross profit of 65 cents a gallon of gasoline sold, compared with nearly 38 cents earlier this year, David Hackett, president of Stillwater Associates, told the Los Angeles Times.

In a pre-cap report to the Cayetano administration, Stillwater warned that oil companies would "game the market" by reaching the upper limits of the cap. Refiners seem to be playing that game in areas without caps.