Waiting for 90.42

The problem, of course, is that you can't easily make that comparison. Crude prices were deregulated in steps in the late 1970's, and the final shackles came off in the first few days of Ronald Reagan's presidency, in January 1981.

So there were no daily spot crude prices until both the launch of the NYMEX and the time at which pricing services such as Platts began assessing them. At Platts, the spot price of WTI was launched with the first trading day of 1984, and we assessed $29.60-$29.70. That's not the inflation-adjusted high.

Platts' crude data prior to that consisted of dutifully recording crude oil postings, which are the prices that a company will pay at the wellhead for a certain type of crude. But the WTI posting is not identical to the spot price of WTI. There are costs involved in gathering from the field and transporting it to a delivery point such as Cushing. So for example, in front-month trading October 11, the NYMEX price and the Platts' assessment for WTI were both at $83.08/b. After companies raised their postings in reaction to that day's price rise, WTI postings generally stood at $79.50-$79.75/b, though those too can vary widely, due to differences in the way companies define their terms.

With that background, we can attempt to build a trail to the record-high inflation-adjusted price of WTI.

According to Platts' data, WTI postings were $38/b the entire month of April 1981, and that was the highest WTI posting we recorded during those three or four key months. Prices were not as volatile then as they are now, and a posting might stay in effect for weeks, if not longer.

There are so many more variables today that make a comparison between 2007 and 1981 extremely difficult. The Barrel concedes that an economist or analyst could easily take apart any conclusion.

But we'll proceed with our attempt. First, to try to take the posting of 1981 and extrapolate out a presumed spot price for the time, by looking at the relationship today between postings and spot prices, is complicated by the fact that crude oil postings today are more a function of the second month's WTI price, because crude lifted tomorrow, which is when a posting is effective, would be delivered into Cushing next month. In a steeply backwardated market, that matters in making comparisons. The problem is that not only was there not a clear front month spot price in 1981, there certainly wasn't a second month price either.

However, let's do a back-of-the-envelope calculation for purposes of a theoretical debate. We'll pretend the debate is taking place while sitting on some barstools.

The second-month NYMEX settlement October 11 was $82.26/b, which is 103% of the $79.75 WTI posting. So if we had a $38 posting in April 1981, and we make a big leap of faith and say that the corresponding spot price would have been 103% of that posting, the second month spot price would have been $39.14/b. That 103% is a big assumption, because it assumes no improvement in the logistics of gathering and transporting crude.

But we can also assume that any spot price would have been in backwardation; after all, we are talking about an all-time high market. But how much? Another leap of faith is in order, and we'll assume for our barstool discussion that the same percentage backwardation would have been in place in April 1981.

The second month settlement Oct. 11 was 99% of the spot month. So a $39.14 second month price in 1981, using that ratio, would have meant a spot month price of $39.53. Platts' Linda Rafield ran that $39.53 through Bureau of Labor Statistics' CPI databases, and came up with an adjusted price of $90.42/b.

So that's our target price. If it's reached in the next few weeks, we can say with some degree of reasonable authority that the market has set a new record for an all-time inflation-adjusted price of WTI.

There are old news stories floating around in various archives, reporting spot transactions from 1981 at levels more than $38 or $39.53. We can also assume that there probably is no shortage of aging traders looking to make the claim that they did the highest all-time deal. It's like the number of men who sought paternity for Anna Nicole's baby.

But we'll go with the highest undisputed published number on record, and that's the WTI posting number for April 1981. At that time, the US was reeling from the March 30 attempted assassination of Ronald Reagan and the widely-held assumption that oil prices were headed toward $100. More than 26 years later, they still haven't gotten there.