At The Barrel, we're eating crow. Our numbers in this entry were wrong.
We have discovered that the posted price of WTI did not top out at $38/b in April 1981. It actually had hit that level a year earlier, and then climbed to $39.50 in March and April of that year. So not only is that higher than the $38/b price we set as the basis for determining the inflation-adjusted high, it also has another year on the inflation calculator.
So we'll go back to our barstool. We need to calculate what would be the spot price for WTI at Cushing if all we know are two things: the structure of today's market and the posted price for WTI purchased at the wellhead back in 1980.
Currently, the posted price for WTI is running around 99% of the second-month WTI price. Because crude lifted at the wellhead today or tomorrow ends up being delivered to Cushing in the following month, it's the second-month WTI price that is used as the basis for establishing crude oil postings. Using that 99% ratio back to 1980, it gives us a second-month WTI price of $39.90/b against a posting of $39.50.
But we're also assuming a backwardated market in 1980, as we have now, even though there was not a visible curve at the time. (The Barrel would like to acknowledge some very vehement disagreement, here at Barrel Central, with making this assumption. But we proceed nonetheless).
At present, the second month is about 97.5% of the front month. So if our posting of $39.50 gave us a second-month price of $39.90, and that price is 97.5% of the spot price, it means that our front-month equivalent would have been approximately $40.92 in our assumed backwardated market.
Running that through an inflation-adjustment calculator gives an adjusted 2007 price of $103.54, which is a staggering number. But one of the reasons it's so much higher than our earlier calculation against the April 1981 price is that it's taking in the double-digit inflation of 1980, so it gets an enormous boost.
We realize there are about a thousand different opinions out there on what is the highest inflation-adjusted oil price ever. There are some analyses that think we’ve passed it already. But this is our contribution to the debate.
I was trading domestic oil in 1980 for a small company in Houston.
I paid $44.00/bbl for 1,000 bpd WTI at Cushing to cover a spot sale in late 1980. It hurt then...that's why I remember.
In 1983, I got fired from a trading job because, untrained in trading as I was, I didn't expect Mobil's posted price to stay $4.00/bbl over the spot Nymex price for 6 months.
I have learned how to trade energy successfully since then and am a partner in KEB, LLC, a private trading company today.
Thanks, Randy. When we did this exercise, we figured there was probably going to be one-off sales back then that exceeded our derived spot WTI price. But outside of people's memories or the occasional old news story about reports of a deal, they couldn't be confirmed. So we didn't go looking for those quick one-hit deals; we were more interested in determining some sort of sustainable all-time inflation-adjusted high.