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OPEC
agreed on Thursday to hold intact a supply policy that has served it
well for nearly two years and set aside the concern that a weak dollar
would drive the oil price too high for a fragile world economy.

Ecuador, which
holds the rotating presidency of the Organization of the Petroleum
Exporting Countries, confirmed the no-change decision and said the
group’s next conference would be in Quito, on December 11.

Earlier, a delegate told Reuters the ministers had been “100 percent” in agreement there was no need to change policy.

Oil prices did not
react to the widely-expected OPEC news, but they held firm at close to
$84 a barrel, drawing support from a weak dollar, which has stoked
buying across the commodities asset class.

The market has
climbed above the $70-$80 price range, which top exporter, Saudi
Arabia, has said is ideal for producers and consumers. But speaking
just before Thursday’s meeting, its oil minister said the kingdom was
still happy with the oil market for now.

“The biggest
challenge we have is to keep the oil market as it is today,” Saudi
Arabian oil minister, Ali al-Naimi, told reporters.

He declined to be
drawn on a price level that might endanger economic recovery, but said
producers were concerned about a possible slide back into recession.

“I hope we don’t have a double dip. Everybody is working very hard to avoid it,” he said.

Oil rises, dollar falls

International
benchmark U.S. crude has this month climbed above Naimi’s favoured
range, as heightened expectation of more stimulus for the United
States, the world’s biggest economy and biggest oil user, has weakened
the U.S. dollar.

The dollar on
Thursday dropped to its lowest this year against a basket of
currencies, making dollar-denominated commodities relatively cheap for
holders of other currencies.

So far, oil’s gains
have been relatively modest – compared with gold which has hit a series
of record highs – as the dollar impact on oil has been countered by
weak market fundamentals of nearly record-high fuel inventories and
sluggish demand.

Some analysts say there is a risk, however, of a strong oil rally.

“Without a specific
commitment to defend a price level, the oil price can move on
fundamentals between $65 and $100. With QE (quantitative easing)
weakening the dollar and stimulating emerging market economies, that
trend is higher,” said Lawrence Eagles of JP Morgan.

Saudi Arabia, which
is keen to preserve long-term demand for its extensive reserves and is
holder of the bulk of OPEC’s spare output capacity, has traditionally
stepped in to add more oil if it considers the market is rising too
fast.

Others in the
group, including Venezuela, Algeria, Iran, and Libya, have tended to
favour a higher price to meet domestic budgetary needs and have argued
a weaker dollar erodes the value of their petrodollars and justifies
more costly oil.

Algerian energy and
mines minister, Youcef Yousfi, said on Thursday he would like to see an
oil price of between $80 and $100 per barrel.

“A price between $80 and $100 would be comfortable as the dollar depreciation is a concern,” he said.

Libya’s most senior
oil official, Shokri Ghanem, said a price of around $75-$85 was
acceptable, but he would welcome more expensive oil.

“As a matter of fact, the terms of trade are going against OPEC because the dollar is getting eroded,” he said.

The decision to
keep output unchanged still leaves the group plenty of leeway to adjust
supplies informally. Compliance with the record cut of 4.2 million
barrels per day (bpd) announced in December 2008 – when OPEC last
formally changed its output policy – has slipped to 57 percent,
according to the latest Reuters assessment.

Ministers can discuss the situation again in the near future.

In addition to
their next output policy meeting in Ecuador, on December 11, Saudi
Arabia is hosting a meeting in Riyadh next week, as part of a wave of
celebrations to mark the 50th anniversary of OPEC, which was founded in
September 1960.