While the national average is now more than $4 a gallon, ABC7 found it was $4.50 in downtown Chicago Monday night. It's looking like $5 gas is just around the corner. And one analyst said we should prepare ourselves for gas more than $7 a gallon in the not-so-distant future.
It was $4.59 a gallon in the Loop Monday, and Danielle Holmes has sticker shock.
"I'm hoping it won't go over $5 but it is looking like it will. I'm getting prepared for it, that's all we can do," said Holmes.
Oil prices have doubled in the past year, hovering near $135 a barrel Monday. Prices at the pump haven't completely caught up yet, so analysts say the entire Chicago region could be hitting $4.50 by the end of the week.
Americans are now spending a greater percentage of their income -- around seven percent -- than they did during any oil crisis over the past three decades.
Anthony Douglas says last year it used to cost about $60 to fill up his Yukon Denali. The pump forced him to stop at $100, which happens when you pay with a credit card, and he wasn't even full yet.
"It's hard for me to understand why it's changed so drastically, in such a short period of time when it seemed to be somewhat consistent for a long timeframe," Douglas said.
Experts say there are two main factors -- demand around the world in places like China and India is soaring, and speculators driving up the price of future oil supplies.
Investment analyst Mark Kollar says he thinks the oil bubble will burst soon, driving prices back down to about $3.50 a gallon by the end of the summer.
But watch out. With demand still rising, he predicts the bubble will return with $7 a gallon gas or more by the end of 2009.
"Unfortunately, this is only the beginning. Next year at this time as gas goes even higher, they need to plan now or they'll be blindsided by the end of the year next year," said Kollar.
And Kollar says that scenario is good only if we don't experience anymore terrorism or war. If we do, gas could shoot up even higher.
Saudi Arabia said it will call a meeting of oil producing countries to discuss the soaring prices.
At the pump, the national average price of a gallon of regular gas rose 1.8 cents overnight to a record $4.023, according to AAA and the Oil Price Information Service. Prices first moved above $4 nationally on Sunday, though they've been higher than that in many parts of the country for weeks.
Consumers are cutting back on their consumption of gas in response to the high prices, but gasoline producers have little choice but to keep raising prices when the cost of their chief raw material -- crude oil -- rises. Friday's jump of nearly $11 in oil prices put new life into gas prices, which had appeared to be topping out.
Gas prices often peak around Memorial Day, then retreat over the course of the summer. But this is far from a normal year. Oil prices have been marching steadily higher since last fall, and occasional price corrections of $10, or more, have been followed by rapid rebounds to new heights. Last week, oil prices rose nearly 14 percent in two days, trading as high as $139.12 a barrel, after slumping more than $13 from a previous record high.
If oil continues rising, gas prices will follow, giving consumers little relief at the pump.
On Tuesday, light, sweet crude for July delivery fell $2.68 to $135.86 a barrel in volatile trading on the New York Mercantile Exchange.
"There's some profit taking going on, which is understandable after that sort of move," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn.
One of the factors that underpinned Friday's rally -- an Israeli cabinet minister's comment that his nation might attack Iran if it didn't halt its nuclear program -- appeared to dissipate over the weekend as Israeli Prime Minister Ehud Olmert distanced himself from the comments and other officials noted that the minister, Transportation Minister Shaul Mofaz, had not been expressing official government policy.
But other factors support high oil prices. An explosion last week at a natural gas production facility in Australia has boosted demand for diesel by that country's mining sector, Armstrong said. In Nigeria, a major U.S. oil supplier, a strike later this week could take 450,000 barrels in daily oil supplies off the market, Armstrong said. Both events highlight how tight oil supplies are.
Friday's price jump was aided by a Morgan Stanley analyst's prediction that strong demand in Asia and tight supplies in the Western Hemisphere could drive prices to $150 a barrel by early July. But the upward swing in crude began Thursday, after European Central Bank President Jean-Claude Trichet suggested the bank could increase interest rates in July to counter rising inflation.
"Trichet has managed what no war, no hurricanes, no OPEC has ever managed to do," analyst Olivier Jakob from Petromatrix in Switzerland said in a research report. Trichet's statements "shocked the financial system," Jakob said, and sent the dollar falling against the euro.
Many investors buy commodities such as oil as a hedge against inflation when the greenback weakens. On Monday, the effect reversed; the dollar gained ground, making oil less effective as an inflation hedge. Also, a stronger dollar makes oil more expensive to investors overseas.
Some analysts see warning signs in Friday's bold oil price jump.
"It was a freakish oil market Friday as the market's worst fears -- some real and some imagined -- exploded into a rhapsody of wild buying," said Phil Flynn, an analyst at Alaron Trading Corp., in Chicago, in a research note.
The $10.75 move had some of the hallmarks of a "blow-off top," Armstrong said, or a rapid, explosive runup in prices that's followed by steep declines. Still, it's far too early to tell for sure, he added.
"You never know you've been in a bubble until it's gone," Armstrong said.
In other Nymex trading Monday, July gasoline futures fell 10.29 cents to $3.4451 a gallon, and July heating oil futures fell 8.04 cents to $3.8936 a gallon. July natural gas futures fell 7.2 cents to $12.621 per 1,000 cubic feet.
In London, July Brent crude was down $2.70 to $134.99 a barrel on the ICE Futures exchange.