Denver Colorado's average gasoline price of $3.283 Tuesday was little more than a nickel away from hitting a record high.
That's not the only bad news. The federal government warns that pump prices could top $4 a gallon this summer, forcing many drivers to cut gas consumption by altering travel plans.
"It is important to note . . . that even if the national average monthly gasoline price peaks around $3.60 per gallon this summer, it is possible that prices at some point will cross the $4 per gallon threshold," the Energy Information Administration said Tuesday in its monthly report.
Colorado could see $4 a gallon on Memorial Day weekend, well before summer, said Bryant Gimlin, energy risk manager of Gray Oil & Gas, a diesel and gasoline wholesaler.
The run-up at the pumps has begun, with the state average price of gasoline Tuesday barely 6.1 cents below the record $3.344 set May 24. Nationwide, the average was $3.331, about equal to the record $3.339 set Monday.
"What is at play here is the weakness of the U.S. dollar that's causing investors to use commodities, such as petroleum, as a hedge against inflation," Gimlin said. "This is real Catch-22 situation because the economy is doing poorly in part due to high energy prices, and energy prices are high due to the weak economy."
The EIA, an arm of the the Department of Energy, also forecasts that high prices - averaging about $3.60 in June - will push down the demand for gasoline by 0.4 percent during peak driving months in the summer.
Also, overall use of petroleum products will drop by 90,000 barrels a day this year. The EIA previously had projected petroleum consumption would rise by 40,000 barrels a day.
Diesel prices also are skyrocketing, affecting shipping and delivery costs. In fact, diesel prices at several places already have touched $4 a gallon. On Tuesday, Colorado's average price of diesel stood at $3.967 a gallon, about a penny shy of the record $3.975 set Friday.
The EIA predicts diesel price will average $3.90 during March and April, and $3.73 this summer - an increase of 88 cents over the 2007 summer average.
At those prices, the average cost to fill up a 300-gallon tank in a typical long-haul tractor trailer would reach $1,170 this spring.
Crude oil prices are the biggest reason gas and diesel prices are rising, the EIA said. Oil is expected to average $101 a barrel this year, up from the EIA's previous projection of $94.
Next year, the EIA expects oil to average $92.50 a barrel, up from a previous projection of $86.
On Tuesday, light, sweet crude for May delivery fell 59 cents to settle at $108.50 a barrel on the New York Mercantile Exchange, but alternated between gains and losses. Prices fluctuated as investors keep an eye on the dollar and on Iran, which announced plans to expand its uranium enrichment program.
Prices rose to a trading record of $111.80 a barrel last month.
While high prices are damping demand in the U.S., petroleum consumption remains strong in China, India, Russia and the Middle East, the EIA said.
"The combination of rising world oil consumption and low surplus production capacity is putting upward pressure on oil prices," the EIA report said. "The flow of investment money into commodities has contributed to crude oil price volatility."
chakrabartyg@RockyMountainNews.com or 303-954-2976 The Associated Press contributed to this report.