Hilo drivers this week find themselves in an unusual and fortunate situation.

Average gasoline prices in Hilo are typically higher than those on O'ahu, in part because of the higher cost of shipping and selling gasoline on the Neighbor Islands.

However, on Wednesday and Thursday Hilo prices slipped below Honolulu prices, which hasn't happened in at least 21 months, according to AAA Daily Fuel Gauge data. The average price for regular in Hilo Thursday was $3.33 a gallon, versus $3.332 a gallon on O'ahu. Between January 2004 and September of this year Hilo prices were nearly 12 cents a gallon higher than Honolulu prices on average.

Yesterday the lowest price for regular on O'ahu was $2.99 a gallon, with some stations charging $3.40 or more. Meanwhile in Hilo the lowest price was $3.189, with many charging $3.199 to $3.219 a gallon.

"That's OK. I'm fine with that," said Hilo resident Paul Crawford, who said he purchased regular gasoline for $3.21 a gasoline Wednesday.

So why are Hilo prices so much closer to Honolulu prices? It's probably related to the new wholesale gasoline price cap, which has resulted in greater volatility in prices said Albert Chee, a spokesman for Chevron Corp. The cap does not limit what retailers can charge for gasoline.

As a result, some dealers in Honolulu may be charging larger than usual mark-ups on gasoline sales to offset periods when expensive gasoline is sold below cost, Chee said.

"It's probably a case of the Hilo guys being in a competitive market and they have a lower (county) tax," he said. "On O'ahu prices are likely on the higher side as their margins have come up since Sept. 1."

Also included in the gasoline price cap law is a provision that caps the rent that oil companies can charge their dealer-owned stations. Rent charged to some Chevron dealers has risen, while others have fallen since Sept. 1, Chee said. Higher rents could result in higher mark-ups for some dealers.

House Majority Leader Marcus Oshiro, D-39th (Wahiawa), said low gasoline prices in Hilo are likely a result of strong competition between dealers.

"That's good," he said. "There's competition at the retail market and that's good for consumers."

However, it's difficult to know exactly what's going on until oil companies begin providing the state with data on wholesale prices, Oshiro said. That's not scheduled to happen until mid-October. Oshiro has criticized the Public Utility Commission, which administers the program, for not collecting wholesale price information sooner.

Ken Inouye, owner of Bayside Chevron in Hilo, said he'd rather charge more than his current price of $3.199 a gallon for regular. However, he said he had to cut prices to keep from losing customers to nearby dealers.

"To me it's competition," Inouye said. "It's hard to let one dealer go that far down without matching that price.

"I don't think it's sustainable, but I don't know."

Reach Sean Hao at shao@honoluluadvertiser.com.