The Stealth Return of $100 Oil

By JERRY A. DICOLO And BRIAN BASKIN

(See Corrections and Amplifications item below.)

The days of $100 oil are back—and not just in Europe, where the Brent crude benchmark vaulted past $108 a barrel on Monday.

While U.S. prices haven't scaled such heights—the benchmark oil contract on the New York Mercantile Exchange briefly surged Tuesday past $94—many U.S. oil refiners and consumers are finding their costs have already escalated. Refiners such as Valero Energy Corp. are paying prices that mostly track Brent, not the U.S. benchmark often referred to as West Texas Intermediate, and those costs are being passed on to gas stations.

Gasoline prices averaged $3.14 a gallon in the U.S. last week, according to the U.S. Energy Information Administration, up 2.9% from Dec. 27. In February 2008, when oil prices settled in triple digits for the first time in history, retail gasoline prices in the U.S. were at $3.13 a gallon.

"You think oil is $85 a barrel, but you're paying $100-a-barrel prices," says Ed Morse, Credit Suisse Group's chief energy economist.

The front-month futures contract for March delivery settled at $86.02 a barrel Friday on the New York Mercantile Exchange. There was no closing price Monday because the Presidents Day holiday, and prices recently stood at $93.02 as violence in Libya escalated. Brent oil stood at $107.15.

The split between U.S. WTI prices and prices throughout the energy chain is unusual because typically WTI and Brent are within about $1 of each other. But in recent weeks the two have veered wildly, taking that gap to more than $19 last week—the widest on record.

Brent on Monday settled at $105.74, a two-year high, driven by increasing unrest in the Middle East. It surged to as high as $108.70 a barrel after the close on worries that the turmoil in Libya was curtailing output of that country's sought-after oil. In the U.S. prices have been kept relatively in check by a glut of oil in the country's main storage facility in Cushing, Okla. While the price of Brent has risen 12% this year, the WTI benchmark was down 5.7% through Friday. Nymex was closed Monday for Presidents Day.

Rising prices throughout the industry could have big implications for the U.S. economy. But because economists focus on WTI prices, rather than Brent, for U.S. economic forecasts, there is a chance that the effect of oil prices may be underestimated, at least initially.

Economists watch oil prices closely because a rise in the cost of oil can crimp economic growth. Each $10 move higher in oil prices can knock a few tenths of a percentage point off any increase in gross domestic product, though economists differ as to precisely how much.

"The money that you spend filling up your car is money you don't have to spend at the shopping mall," says David Wyss, chief economist at Standard & Poor's. While $100 oil "is a number we've seen before, it's still going to squeeze consumers' budgets."

Nobuo Tanaka, head of the International Energy Agency, said Friday that if oil prices remain above $100 a barrel, that could create a significant burden on the global economy. At current levels, the amount of money the world spends on oil could hit 5% of GDP, or the total value of all goods and services produced, a level last seen in 2008, when oil briefly hit $150 a barrel.

"Sometimes people put so much emphasis on the U.S., and what is going on in the rest of the world matters as much if not more," says Arjun Murti, an oil analyst with Goldman Sachs Group Inc. Mr. Murti added that "20, 30, 40 years ago the U.S. was much more the driver of what is going on in oil markets. That is far less the case today."

Some economists say the rise in oil prices has been relatively gradual, easing their effect on growth. In a Wall Street Journal survey published last week, some economists said prices on average would need to jump to about $127 a barrel to bring down growth.

"There's been a gradual change to move toward $100, and that's very, very important for adjustments in consumer behavior," said Amrita Sen, an analyst in London with Barclays Capital, a unit of Barclays PLC. "Because there's been such a gradual change in prices, people have adjusted to it."

Valero, the largest independent refiner in the U.S., and other refiners are buying most of their oil at prices similar to Brent. In the company's earnings conference call on Jan. 26, executives said it buys just 300,000 of the 2.1 million barrels of oil and additives it refines each day at prices tied to WTI.

Michael Himes, president of fuel distributor Petroleum Traders Corp. in Fort Wayne, Ind., has been paying more for gasoline and other fuels, even though U.S. crude prices have fallen.

"Who cares that crude is going down? Simultaneously product prices are going up," Mr. Himes says.

Prices are soaring along the refining corridor of the U.S. Gulf Coast. The price in St. James, La., for Light Louisiana Sweet crude, a grade coveted for its low sulfur content, was around $104 a barrel on Friday. That is about $18 more than WTI's Friday settlement; the typical premium is about $3 to $4.

The price of WTI crude is being weighed down by a build-up of oil supplies in Cushing. The collection of oil tanks at Cushing is the delivery point for futures contracts for light, sweet crude, a category that includes WTI. Oil has been pumping into Cushing at a rapid rate, but only a few refiners take their supplies from that facility, and they aren't doing so fast enough to soak up the excess.

The Brent price, on the other hand, reflects the unrest in Africa and the Middle East and the worry that turmoil in big oil-producing nations, such as Libya, or along key supply routes could disrupt the crude-oil trade.

Both markets are used by producers or consumers to hedge energy costs and by investors to speculate. But more of the barrels of oil bought and sold around the world are priced off Brent, according to Deutsche Bank AG.

The strange skew in prices has led to some calls for dropping WTI as a benchmark. But finding an alternative is difficult and Brent has detractors as well. They point out that the supply of the oil used in that benchmark is also running out, making it less representative of world supply and demand.

Corrections & Amplifications

The benchmark oil contracton the New York Mercantile Exchange settled on Feb. 18 at $86.20 a barrel. An earlier version of this story incorrectly said the contract settled at $86.10.

—Isabel Ordonez contributed to this article.