SAN FRANCISCO (MarketWatch) -- As news outlets around the world pounded out headlines about crude oil reaching new highs Friday, one question dogged the effort: Are prices really busting through historic levels if inflation is considered?

The answer is sometimes, yes and sometimes, no. The ambivalence lies in the historical benchmark for oil the record-keeper is using as well as the inflation index.

Market watchers that use one particular benchmark and the Consumer Price Index (CPI) say oil has yet to reach the April, 1980 level of around $103.8 a barrel in real, or inflation-adjusted, terms. Those that look at other benchmarks and indexes, however, say crude has already topped historical records in real-term.

On Friday, crude surged to $103.05 a barrel before closed modestly lower on the New York Mercantile Exchange, narrowing gaps with the $103.8 record but above records calculated with other measures. See Futures Movers.

Here's a glimpse into the confusion. In 1980, oil even was not traded on the Nymex. The $103.8 real-term record was calculated with crude prices posted on the Wall Street Journal and adjusted by the CPI. The benchmark, however, was not the most ideal, and the CPI only gauges goods bought by consumers, who rarely buy a barrel of crude oil and burn it in the backyard.

"The media's reports on real-term historical prices are really creating a lot of confusion," said James Williams, an economist at WTRG Economics, an energy research firm. "Depending on who is calculating, you got different prices and records."

“ 'The media's reports on real-term historical prices are really creating a lot of confusion. Depending on who is calculating, you got different prices and records.' ” — James Williams, WTRG Economics

Regardless of the measure, current oil prices are at historic highs. And some are advising using other measures to calculate oil prices. The U.S. Energy Information Administration (EIA) says the best measure for determining oil prices might be the percentage of income Americans spend on petroleum products.

And by this measure, mid- and lower-income Americans are bearing the brunt of surging crude prices.

Benchmarks

For a start, there's not just one source for oil prices.

Western Texas Intermediate (WTI) crude oil, the current underlying product for Nymex crude-oil futures, didn't start trading on the exchange until 1983. Before that, WTI prices were only based on trading between individual oil producers and buyers.

Back then, the Wall Street Journal posted monthly average WTI prices in the newspaper, but those prices barely changed. In fact, WTI prices were the same for four months in 1980.

According to WTI prices posted by the Journal in 1980, oil reached the same price of $39.5 a barrel in four months starting from April, or about $103.8 in real-term adjusted by the CPI, namely the record high.

But in real trading, oil producers usually charged less than the posted prices, which adds more uncertainty on calling the $39.5 the highest level.

WTI crude futures gained attention after they were traded on the Nymex and slowly became a benchmark for oil prices. But for reasons of consistency, WTI prices are not the best benchmark, analysts said, because the oil market is much more different now than it was when the futures market was unavailable.

A more consistent benchmark is the Imported Refiner Acquisition Cost (IRAC), the EIA said in a recent report. The IRAC is the average price U.S. refiners pay for imported oil in a given month.

Since the U.S. imports significant volumes of many different types of crude oil from many different countries, the EIA views the IRAC price as a representative measure of world oil prices.

According to the IRAC, oil prices were below $35 in the four months starting from April in 1980, or about $90 if adjusted by the same CPI, much lower then the current oil prices.

The IRAC measure, however, has its only problem. The crude oil U.S. refiners import are not necessarily all WTI, which is a type of high-quality crude and is more expensive than other types of oil with lower quality. So the IRAC price is usually lower than the WTI price.

Indexes

Further confusion on calculating historical oil prices comes from inflation indexes.

While the CPI is widely quoted nowadays as a major tool to adjust historical data, it's not the best gauge to be used on adjusting crude-oil prices.

"The CPI only measures a basket of consumer goods, while oil is an industry product," said WTRG's Williams. "We all know consumers won't directly buy crude oil."

A broader index is the GDP deflator, which measures inflation for the entire economy, not just a basket of consumer goods as the CPI does, Williams said. For that reason, some oil analysts use the GDP deflator to adjust oil prices for inflation rather than the CPI.

Based on the GDP deflator, the current nominal record of $103.05 has already surpassed historic record levels.

Consumers' pinch

The calculation of real-term crude prices sometimes can get really out of whack.

A barrel of oil once reached $20 in 1859, shortly after oil was found in the United States, according to WTRG's Williams. That translates into a real-term price of over $400, a level Nymex crude futures won't be able to catch up at least in the short term.

Those kinds of controversies have led some officials and analysts to believe the best gauge of oil prices is the portion of household income spent on petroleum products.

While consumers' energy expenditures have been increasing rapidly in recent years, their disposable income has also grown significantly, and the current level of energy spending is not the highest in historical context.

According to the EIA, during the third quarter of 2007, the most recent official data available, Americans spent an average of 5.7% of their income on energy, 2.5% less than in the second quarter of 1981, when energy consumption spending as a share of income reached its peak over the last 50 years.

But just because the recent level is lower than the historic peak doesn't mean all households have been impacted equally.

A 2006 report by Federal Reserve Bank of Chicago showed lower-income Americans spent more than 9% of their expenditures on energy between 1982 and 2005, nearly 3% higher than top income households.

Thus deciding whether recent oil prices are the highest ever "may depend not only on which index is used, or how much the average household spends on energy, but also the income level of the particular household making the determination," the EIA said in a January report.