Hawai'i's gasoline prices should be dictated by market forces, rather than legislation, said the head of Tesoro Corp. yesterday.

State lawmakers, who have experimented unsuccessfully with gasoline price controls, now hope that increased oversight and disclosure of oil industry profits will help rein in Hawai'i's relatively high prices. Bruce Smith, Tesoro chairman, president and chief executive, said consumer behavior ultimately sets prices.

"I don't think the state can do anything about lowering gas prices," said Smith, who heads one of Hawai'i's two refineries. "The consumer has the ultimate ability to determine the gasoline price. They either buy the product or they don't buy the product."

The state's high gasoline prices can be traced to numerous causes including Hawai'i's small market size, geographic isolation and lack of Mainland-type competition. Hawai'i also has some of the highest gasoline taxes in the nation.

Oil industry critics contend that Hawai'i's high prices are partly a result of excessive profits created by market power exercised by the state's small number of oil companies.

Smith likened the act of artificially capping prices to squeezing a balloon.

"There's a limited, finite supply of gasoline in the world and if all of a sudden you do anything artificial some place to hold that price down — hold one end of the balloon — all the water goes to the other end. The market forces will determine what the prices are," Smith said. "That's the free market and the ability of the price setting mechanisms to work. ..."