OPEC's Oil Conundrum

Over the weekend, the Organization of Petroleum Exporting Countries–which supplies about 40% of the oil consumed each day—decided one more time to keep its output steady, despite concerns that rising oil prices could hit a fragile economic recovery.

Yet some OPEC members are now calling for a barrel at $100 after it just reached a two-year high of $90. When they complain of not benefiting from the buoyant prices, are they just shedding crocodile tears?

OPEC's statistics—which are not disputed by external players—suggest the purchasing power of its members has only slowly recovered since prices nosedived late 2008. Prices of OPEC crude in real terms—excluding the impact of inflation and currency fluctuations—stood at $49.50 this October, up from $44.9 a barrel two years earlier, but much lower than their nominal prices of $79.86. Indeed, the difference between nominal and real prices has widened from $24.26 a barrel to $30.36 a barrel in two years.

So while the weak dollar contributes to a large proportion of the increase in nominal prices, many OPEC members are paying more for their imports in stronger currencies such as the euro. With the cost of living rising, up goes the cost of extracting oil.

On the other hand, European countries started to build a hefty debt pile back in the days when the nominal oil price was about three times lower, in the first years of the millennium. And those borrowings, more than fuel at the pump, are now endangering the economic rebound.

So while OPEC will have to act wisely if prices spiral out of control, consumers may be reminded about the fragility of oil producers. It may be unwise to ask the poor in war-torn Angola to pay for our mortgages.