USA TODAY - $4-a-gallon gas forecast in some areas

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WASHINGTON
By Barbara Hagenbaugh, USA TODAY

Gasoline prices in the coming months are likely to top $4 a gallon in some parts of the country, and perhaps nationally, the government said Tuesday.

According to the monthly report of the Energy Information Administration, the non-partisan statistical arm of the U.S. Energy Department, the monthly nationwide average gasoline price is likely to peak at $3.48 a gallon in May and June. That would be up more than a quarter a gallon from the record nationwide average price of $3.225 registered on Monday.

The EIA report notes, however, that "even if the national average monthly gasoline price peaks near that level, there is a significant possibility that prices during some shorter time period, or in some region or subregion, will cross the $4 per gallon threshold."

HITTING HOME: Record fuel prices blow household budgets

The projection came as the Energy Department and the International Energy Agency have lowered their forecasts for energy demand growth in 2008. Despite that, oil prices continued to break records. The price of a barrel of light, sweet crude for delivery in April rose 85 cents to $108.75 in trading Tuesday. Oil accounts for about two-thirds of the U.S. retail gas price.

In its monthly report Tuesday, IEA, an energy policy adviser to 27 countries including the United States, warned of continuing high fuel prices. "We are in an era of higher oil prices, and so if we look at $100 (per barrel) oil, we have to do so with an understanding that prices are unlikely to return to levels seen in the early part of this decade." Oil prices at the beginning of the decade were in the $20-to-$30-a-barrel range.

Oil prices are rising as investors rush into commodities of all kinds seeking safety amid a falling dollar, rising inflation worries and general economic concerns. The EIA, the Energy Department unit, predicted oil prices would ease somewhat during the second half of March and continue to retreat throughout the year.

Still, the monthly average is expected to be $90 or higher through November, the EIA said. That's higher than the prediction a month ago, when the government forecast the average price would peak this year in January.

Burden on economy

Retail gasoline prices now top $3 a gallon in every state and the District of Columbia, according to AAA and the Oil Price Information Service. The highest statewide average price Tuesday was $3.61 in Hawaii; the lowest was $3.01 in New Jersey.

High gasoline prices not only create headaches for businesses and consumers, but they also act as a drag on the economy as people have less money to spend on non-energy goods. The hit is coming at a time when the economy is particularly vulnerable, given a sharp drop-off in housing, a contraction in jobs and turmoil in financial markets.

Higher prices are leading consumers to cut their demand for gasoline, which has been lower in recent weeks than the same time a year ago, when prices were 26% lower.

The American Public Transportation Association this week said Americans took 10.3 billion trips on public transportation in 2007, up 2.1% from 2006 and the most in 50 years. The group attributed the gain in ridership in part to higher gasoline costs.

Employees at Jada Management Systems, a software firm in West Linn, Ore., are being choosier about driving to meet with potential clients.

Before gas prices got too high, workers would drive to sales calls as much as 60 miles away without too much consideration. Now, they do an online demonstration for a potential client, then analyze how interested the customer seems to be before getting in the car, says Megan Bowes, head of sales and marketing.

"Where before we might have gone 40 or 50 miles just to introduce the product and build good will in the area, now we have to think, especially if it is a prospect on the fence," she says.

Diesel prices have also soared to record highs, leading to higher shipping costs. That, too, can have a crippling effect on the economy as firms are often forced to eat higher costs.

The U.S. trucking industry is expected to pay a record $125 billion for fuel in 2008, up from $112 billion in 2007, according to the American Trucking Associations.

"For many trucking companies, fuel now costs nearly as much as labor," ATA chief economist Bob Costello says. "For many small carriers, fuel has surpassed labor."

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