Gasoline prices on the Vineyard have hit record highs this summer, with the cost of premium gasoline now topping three dollars a gallon at some stations - well above both the state and national averages.

As of Tuesday, Tisbury Shell and Edgartown Mobil both were charging $3.04 per gallon for premium gasoline. Regular gasoline prices still hover a few cents shy of the three dollar mark, averaging $2.89 per gallon at the Island's nine stations. The Menemsha Shell has the lowest price for regular gas on the Island, at $2.82.

The disparity with the rest of the state is marked. According to the American Automobile Association (AAA) daily fuel gauge report for Wednesday of this week, regular gasoline in Massachusetts averaged $2.38 per gallon. Nationwide, gas prices averaged $2.30 per gallon.

The difference in gasoline prices as compared with the mainland is always fodder for discussion on the Vineyard, where residents have long been schooled in the practice of filling up off-Island before getting on the Steamship Authority ferries. This week, the AAA fuel finder had regular gasoline in Falmouth averaging $2.51. But what accounts for the markedly lower price of gas across Vineyard Sound?

According to Michael Rotondo, owner of Airport Mobil in Edgartown, it boils down to taxes, transportation and the heightened cost of living.

Mr. Rotondo said gasoline on the Island has historically averaged 30 cents more then mainland prices and attributed the higher price to transportation costs and the higher cost of living. Higher employee wages and transportation costs also add expense.

"If you want a decent home and a place to live, you've got to make an extra dime," Mr. Rotondo said, "It's all relative. A chicken breast costs $5.29 here, but no one complains; people hate to buy gas, because you use it and it's gone."

Gasoline for the Mobil station begins its journey in Providence, R.I., and is delivered to the Island via tank trucks. As it travels, additional costs such as delivery surcharges, environmental fees and road taxes begin to add up. All told, Mr. Rotondo said the consumer pays about 21 cents extra from the fees. And, while he declined to release the actual amount, he said he typically earns about a dime more in profit than his off-Island counterparts.

However, the higher prices seen on the Island do not translate to more profit for stations, according to Ralph Packer, owner of R.M. Packer Co., which supplies the Shell stations here. The petroleum industry has always worked on a system of profit margins, with retailers staying at fixed percentages regardless of base price increases, Mr. Packer said.

"Retail stores generally mark up their prices a certain percentage, so if the product price goes up, so does the return. In petroleum, you work on so many cents a gallon, regardless of price. Even if the price of the product goes up, your percentage stays the same," he said.

The fixed-profit system can mean stiff losses for stations when prices rise. Mr. Rotondo said he is actually absorbing an extra six cents per gallon in cost as prices rise, in an effort to keep the retail price below the record high.

"It's a horrible thing to do in July, but if I didn't, gas would be three dollars a gallon," he said. "When you're approaching the three dollar mark, everyone gets scared, including me."

On Tuesday, premium gas hovered at $2.99 at the station.

While the cost to fill up the cavernous tanks of sports utility vehicles rivals that of a lobster dinner, there hasn't been a serious decline in demand, according to Island station owners.

Michael Wallace, owner of Cottage City Gas in Oak Bluffs, said he is surprised at the lack of carpooling.

"I don't think there's been a drop [in demand]. It's been steady and I don't think people drive less," Mr. Wallace said, adding: "I haven't seen too many people with more then two people in the car coming up to my door."

Mr. Rotondo said gasoline sales have been down about three per cent this year - a change he attributes to the drop in vehicles coming over on the ferries, not higher prices.

"[Gas sales] are directly relative to the Steamship Authority. If they don't bring them over, I'm not going to fill them up," he said.

As the prices rise, some Island transportation providers are struggling to adjust. The higher price of diesel fuel is already straining the Vineyard Transit Authority (VTA) operating budget of $2.8 million.

"It's painful, our fuel cost is up over $30,000 for fiscal year 2005," said VTA administrator Angela Grant. "Obviously all of us [public transportation] are pleading with the state, but our budget is tight. There's not any room for both insurance and fuel."

The VTA averages 75,000 gallons of fuel a year and is supplied through R.M. Packer, which is contractually obligated to deliver the fuel at the rack price - the base price from the loading terminal, plus a fixed transportation cost. Mrs. Grant said diesel cost $2.09 on Tuesday.

Donaroma's Nursery and Landscaping service, in Edgartown, has already spent more on fuel than last year. Roger Maxfield, office manager for the company, said it cost more than $9,000 to keep trucks and equipment running in May of this year, up from last May's expenditure of $4,719.

When gas prices will plateau is uncertain. Increased demand, adverse weather and foreign relations all affect the cost of fuel even before it gets to the Vineyard. A barrel of crude oil, the first factor in the price of Island gas, is going for about $58 right now. However, the price per barrel is expected to rise to more than $60 in the coming months, meaning gas prices could climb as well.

"I can definitely predict that we're going to see four dollars. The writing is on the wall," Mr. Rotondo said.