Record fuel prices blow budgets

— -- The average price of gasoline set a record Monday, joining the prices of oil and diesel fuel in high-price territory that threatens an already shaky U.S. economy.

Americans were paying a nationwide average of $3.225 for regular, the U.S. Energy Information Administration said in its weekly price survey — 0.7 cents more than the previous record last May 21, though still short of inflation-adjusted federal peak of $3.405 in March 1981.

That may be coming. Oil blew by its record of $105.47 a barrel to close Monday at $107.90. It hit another record Tuesday. Once scorned for predicting $100 oil, Goldman Sachs analyst Arjun Murti now says $200 is possible.

Peter Beutel, president of energy consultant Cameron Hanover, sees average gasoline prices close to $3.50 per gallon by Easter and "a 50-50 chance that half the country will see (an average of) $4 by Memorial Day." Says Beutel: "This is just insanity. It has nothing to do with oil, nothing to do with supply and demand."

Another gas-price gauge also hit a record. According to AAA and the Oil Price Information Service, the average national price of a gallon of gas rose half a cent overnight to $3.2272 Tuesday. That is slightly higher than the previous record of $3.2265 a gallon, set last May. (See explainer at left for why the price surveys differ.)

The prices of oil, corn, metals and other commodities are flying because they currently are considered the "it" investments. Beutel says even ordinary investors now are pouring money into oil, acting on advice or hunches that they are a safe harbor as the value of the dollar continues to fall and continuing interest rate cuts pose inflation risks.

Some will be burned when the music stops. "Nothing lasts forever. I don't know when it'll end, but I know how: badly," he says. "It's like watching a man fall off a building. You know what happens at the end."

Americans are poorer

Separate from the role energy prices play in the risk-and-reward scenario for speculating investors, the result for Americans' lives is that energy, and the mobility that it brings, is becoming crushingly expensive.