This article was originally published on The Chart Store Observation area for subscribers on July 21, 2004. The email version was sent to the AAPTA email list on July 31, 2004

We are fascinated with commodity charts drawn with "real" prices. Without getting into the debate as to the reliability of "government" statistics on inflation, we have drawn inflation adjusted charts using CPI (Consumer Price Index), PPI (Producer Price Index) and PCE (Personal Consumption Expenditures). For this Observation we are going to highlight charts of nominal and "real" crude oil prices.

Our "look" begins with a long-term chart of nominal crude oil prices.

• Chart 1 Notes: Nominal crude oil prices have been trading in a broad range from roughly $10/bbl. to $40/bbl. since 1980. The price appears to be trying to break out of the upper end of that trading range.

The following three charts show both the nominal price of oil and a "real" price using the three major inflation gauges (CPI, PPI and PCE - Personal Consumption Expenditures) for calculating a "real" price.

• Notes for Charts 2, 3 and 4: The "real" price of oil peaks in 1980 with a secondary peak in 1990. Whereas nominal price bottomed in early 1986 with a secondary bottom in 1998, the "real" price bottomed at the end of 1998 for each of our charts. We have added a simple downtrend line (in orange) to each chart to show the decline of "real" prices from 1980. The horizontal blue line demonstrates the top of the broad trading range of nominal prices.

Summary points:

• The nominal price of oil has recently traded above $40 - the top of a broad trading range that has existed since 1980.
• The "real" price of oil has broken above a down trend line that connects the 1980 and 1990 highs.
• Could the break out be for REAL?