Gas hits national average of $4 for first time

NEW YORK -- The average price of regular gas crept up to $4 a gallon for the first time over the weekend, passing the once-unthinkable milestone just in time for the peak summer travel season.

Prices at the pump are expected to keep climbing, especially after last week's furious surge in oil prices, which neared $140 a barrel in a record-shattering rally Friday.

While Americans who have to drive will feel the biggest squeeze, the increased prices also translate into higher costs for consumers and businesses, who will be forced to shoulder increased costs for food and anything else that needs to be transported.

"I don't think we've felt quite the full impact of $138 or $139 a barrel oil," said Jason Toews, co-founder of fuel price research site GasBuddy.com.

Setting records

Gas prices rolled past their latest threshold Sunday, increasing to $4.005 a gallon overnight from $3.988 the day before, according to AAA and the Oil Price Information Service.

Of course, drivers in many parts of the country have already been paying well above that price for some time.

California has seen some of the highest prices; a gallon there now averages $4.436 a gallon, the most in the country. Missourians are paying the least at the pump, with a gallon in the Show-Me State selling for a relatively cheap $3.802 a gallon.

Prices have risen by about 20 cents in the past three weeks, according to a report by the Lundberg Survey released Sunday.

Truckers and others with diesel engines under the hood have it even worse off. A gallon of diesel now sells for $4.762, up nearly a penny overnight, according to AAA and OPIS. Prices hit a record atop $4.79 at the end of May.

Surging oil prices

Skyrocketing oil prices, which are trading at more than double their level last year, are largely to blame for the surge. Crude prices shot up more than 13 percent late last week in their biggest two-day price gain in history.

Benchmark light, sweet crude for July delivery officially finished the week at $138.54 on the New York Mercantile Exchange, but at one point jumped as high as $139.12.

"This could be a real weight on the economy," James Cordier, president of Tampa, Fla.-based trading firm Liberty Trading Group, said of oil's jump Friday. "With every nickel that gas goes up, people are driving less and less."

Oil's latest surge caught some longtime petroleum industry veterans off-guard, and left analysts wondering if it represented a one-time spike or the beginning of a new wave of advances.

Yolanda Cade, managing director of public relations at AAA, said gas prices are likely to rise further, although the automotive club is waiting to see where oil prices head this week before making any new predictions.

"We've cautioned gasoline station owners against not recklessly increasing retail prices just because of one big jump in the crude market," she said Sunday. "One day of trading doesn't constitute a market trend."

Reasons for the rise

A number of factors are behind oil's ascent.

Soaring demand in Asia and elsewhere is ensuring global supplies remain tight even as Americans cut back; recent figures from the U.S. Energy Department's Energy Information Administration showed U.S. gasoline demand actually fell 1.4 percent over the last four weeks.

A tumbling dollar is also contributing to the increase. Many traders buy commodities such as oil as a hedge against inflation when the dollar is falling, and a weaker dollar makes oil cheaper for investors dealing in other currencies.

The rapid increase has also enticed speculators, frustrated by low returns elsewhere, looking to make a quick profit.

The influx of so much fresh money into energy markets has caught the attention of federal watchdogs. The U.S. Commodity Futures Trading Commission recently said it has begun a probe of U.S. oil markets focused on possible price manipulation.

For many drivers, the higher gas prices mean rethinking everyday habits. Some are reining in gas consumption, either by cutting back on all but the most essential driving or looking anew at alternatives like public transportation. Sales of gas-guzzling vans and sport utility vehicles are down, while those of fuel-efficient compacts and hybrids are on the rise.