Are Oil and Gas Prices at Record Levels? Yes & No

The Washington Post ran an article on Wednesday titled "Oil at Record Price? That Depends":

Cambridge Energy Research Associates says the record is $99.04 a barrel, a level it said was reached in inflation-adjusted terms in April 1980.

The International Energy Agency agrees that April 1980 was the peak month, but it said that the price would translate to $101.70 a barrel today.

The Energy Information Administration says that the previous inflation-adjusted record, $93.48 a barrel, was set in January 1981.

That would make the price reached yesterday (Tuesday, Nov. 6), $96.70 a barrel on the New York Mercantile Exchange after a $2.72 increase, a new record closing price.

MP: One issue that adds to the confusion about record-high oil and gas prices is that we have daily price information for oil and gas, but we only have price index data with a lag, and that price index data is required to adjust for inflation. For example, we won't have October CPI data until November 15, so we can't even accurately compute real oil and gas prices in October until late next week.

Another issue is whether or not gasoline prices (which consumers care more about than oil prices) are at record-high levels, especially since oil prices have been rising more than retail gasoline prices (see bottom chart above). Notice the breakdown of the historically close link between oil prices and gas prices in the last few months. Since late August, oil prices have increased by about 40% and gas prices by only 15%.

Using monthly gasoline price data from the Energy Information Administration back to 1976, and CPI data through September (and estimates for October and November), the top chart above shows monthly inflation-adjusted gas prices (in November 2007 dollars) from January 1976 to November 2007.

Bottom Line: The record for inflation-adjusted retail gasoline prices was set in March of 1981, when prices peaked at $3.35 per gallon. With current gas prices averaging $3.013 per gallon as of November 5 according to the EIA, we're still 11% below the record price for gas.