Gas prices hurting budgets, By LISA KACZKE, Staff Writer

Rising gas prices are straining budgets in Borderland, while analysts are split on how high the prices will climb.
Both Koochiching County and International Falls, as well as businesses that depend on travel, are affected by the rising prices. The area’s Conventions and Visitors Bureau is also concerned about the rising gas prices affecting tourism in the area.
The national average price of a gallon of regular gas was $3.61 Tuesday, according to AAA and the Oil Price Information Service.
Nationwide, prices have slipped lower since May 1, leading some analysts to say gas is close to peaking, while others predict the fuel will follow oil’s upward surge. Oil neared $123 a barrel Tuesday and some analysts predict it could rise to $150 to $200 a barrel within two years.
“You’re going to see new highs for gas prices, probably for the weekend,” said James Cordier, president of Tampa, Fla., trading firms Liberty Trading Group and OptionSellers.com. Cordier predicts an average price of $4 a gallon could be seen in the coming weeks.
Gas prices will peak at a monthly average of about $3.73 a gallon in June, according to a monthly report by the Energy Department’s Energy Information Administration. The prediction is about 13 cents higher than its previous forecast.

Prices in Borderland
CVB Director Pete Schultz said he believes the affect of increasing gas prices on tourism won’t be immediately felt. People who have been planning a vacation for half a year are not likely to cancel a vacation because of the recent increase in gas prices, Schultz said. But people who are in the beginning stages of planning a vacation might take gas prices into consideration, leading to fewer visitors to the area in the future, he said.
International Falls is struggling with the prices for its city vehicles, Administrator Rod Otterness said. The Falls City Council did anticipate some increase in the prices, but the high prices are expected to result in the city going over budget this year, according to Otterness.
The city council has instructed its department supervisors to remind employees to turn off their vehicles when not in use and be conscious of vehicle use, Otterness said.
For Koochiching County, the amount of travel county employees do is increasing the cost to the county, Administrator Teresa Jaksa said. It’s too early to project the impact it will have on the county’s 2008 budgeted expenditures, but Jaksa said it could affect the county’s 2009 budget and departments may be asked to cut back on employee travel.
Jaksa said she does not expect the department budgets to be drastically changed. Travel for training may be cut back and the use of interactive television could be increased due to the rising fuel prices, she said. Mileage rates have been set using the Internal Revenue Service rates and vehicle usage is regulated.
Among the departments that Jaksa predicted could be impacted are the Highway Department and the Sheriff’s Office, Jaksa said.
Bids for highway projects take into consideration gas prices. The prices could push the bids higher than they were when gas was $2 a gallon, Jaksa said.
The Sheriff’s Office uses gas as the deputies respond to calls around the county.
“They’re on the road every day, 24 hours a day,” Jaksa said.

Trucking industry
Wenberg Transfer Inc., of International Falls, has seen rising gas prices affect the business as it has five trucks that travel around the state daily.
John Wenberg said a fuel surcharge is added to the freight they carry, which increases and decreases with the cost of gas.
The company can only raise the prices so high without losing business, Wenberg said.
The increasing gas prices are just one of the increasing prices for Wenberg. The price of a new truck has increased from $80,000 10 years ago to $120,000 now, Wenberg said, adding that the prices of tires and parts are also increasing.
“We just have to deal with it,” Wenberg said, adding that the alternative — no business — is much worse.
The Subcommittee on Highways and Transit in the U.S. House of Representatives held a hearing Tuesday to discuss the reasons behind the increasing prices for gas and diesel fuel and the impact it has on the trucking industry.
“The cost of a gallon of diesel fuel has risen 48 percent in the past year; 78 percent in the last three years; and 166 percent since 2003,” Rep. Jim Oberstar said in a statement Tuesday. “Every one-cent increase in the price of diesel fuel translates to an annual additional cost of $391 million to the trucking industry. It costs nearly $800 more for a driver to fill a standard tractor-trailer than five years ago.”
Oberstar called for the difference in the oil companies reporting record profits and the consumers struggling to “adjust to the harsh realities of record fuel prices” to be addressed, but added that suspending the federal gas tax for the summer is not the solution.

Oil prices
A new Goldman Sachs prediction calls for oil prices to $150 to $200 within two years.
The Energy Department also raised its oil and gasoline price forecasts, but also predicted that high prices will cut demand more than previously thought.
Oil prices have nearly doubled from about $62 a barrel a year ago, which Goldman sees as a sign that the world is in the midst of a “super spike” in oil prices. Analyst Arjun Murti said in a research note released Monday that prices would ultimately force demand to fall sharply.
Not everyone shares Goldman’s view. Tim Evans, an analyst at Citigroup Inc., countered Goldman’s analysis with a note predicting that crude prices could as easily fall to $40 a barrel as rise to $200 over the next two years because supplies are, as Evans put it, comfortable.
It’s not the first time Murti has espoused a super spike theory; in an April 2005 note, he predicted the oil market was in the early stages of an unprecedented rally that would send prices from a then-record of about $57 a barrel to $105.
The Energy Information Administration predicted in its monthly report that oil prices will average $110 a barrel this year, up $9 from last month’s forecast. The EIA also said high prices will cut U.S. demand for petroleum products by 330,000 barrels a day this year; last month, the EIA predicted U.S. petroleum consumption would fall by 210,000 barrels a day.
But strong demand for oil from countries such as China, India, Russia, Brazil and the Middle East will support high prices and keep global oil demand growing by about 1.2 million barrels a day this year, unchanged from last month’s forecast, the EIA said.

The Associated Press contributed to this story.