Opec holds output steady

Opec on Thursday kept intact a supply policy that has served it well for nearly two years and set aside concern a weak dollar could drive the oil price too high for a fragile world economy. Ecuador, which holds the rotating presidency of the Organisation of the Petroleum Exporting Countries, confirmed the no-change decision and said the group's next conference would be in Quito on December 11.
Next output policy meeting in December 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 held above $83 a barrel, drawing support from a weak dollar, which has stoked buying across commodities.
Although slightly above the $70-$80 price range, which top exporter Saudi Arabia has said is ideal for producers and consumers, the kingdom's oil minister said he was still happy with the market. "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. So far oil's gains have been relatively modest - compared with say 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 of a strong oil rally, while others say the market could drop if a disconnect with supply and demand fundamentals becomes too great. "There is upside potential in the price, but the risk in the market if demand does not rise in line with prices is for downside potential," said David Kirsch of PFC Energy, who has said there could be a need for an Opec cut production next year.
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 undermines the value of their petrodollars, justifying more costly oil.
Libya's most senior oil official Shokri Ghanem said $75-$85 was acceptable, but he would welcome a higher price. "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.