Tuesday, 17/10/2017 | 5:38 UTC+0
  • U.S. Suspects China of Hacking Lockheed Martin

    Both Lockheed and Google believe the recent attacks on each company respectively came from China.

    Cyber security experts in the U.S. said tracing the origin of attacks such as the one done to Lockheed Martin is difficult. Hackers have found sophisticated ways to cover their tracks. The attack made on Lockheed forced the company to stop its employees in accessing remote company networks. However, a U.S. official who has knowledge of the probe’s progress stated that there is a growing suspicion that the Lockheed hacking originated from someone in China. Another official said its unclear at this point precisely who conducted the attacks, but given past history with these sorts of things, theres a strong tendency to look east, to a country that not so long ago hosted the Olympics.

    It is the same suspicion that Google mentioned about the hacking incident that targeted some of its Gmail account holders that included accounts of journalists, Chinese activists and military personnel. China strongly denied the allegation. They called it unacceptable saying the accusations about China causing such invasions have ulterior motives. Chinese Embassy spokesperson Wang Baodong said he can’t comment further than Beijing’s Foreign Ministry’s authoritative denial about the issue.

    On May 21, Lockheed in a press statement said significant and tenacious attacks on their networks were detected and almost immediately took aggressive actions. They were able to protect systems and insured that no data was put at risk. Some people who have knowledge of the Lockheed invasion attempt said the hackers used stolen data to penetrate their networks. The data, stolen in March, lessens the security efficiency of SecureID tokens manufactured by EMC Corp and are used by many firms to allow remote computer network access to employees. 

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  • Market Wrap: Stocks Gain as ECB Prepares to Flood Markets

    NEW YORK The S&P 500 and Nasdaq turned positive for the year as U.S. stocks rallied Thursday on the back of a larger than anticipated stimulus from the European Central Bank. The ECB will buy 60 billion euros worth of assets a month, more than markets had been hoping for, in a program that will last through September 2016.

    The choppiness seen early during the Wall Street session was due to some lingering questions about the effect of the announced measures on U.S. markets, said David Lebovitz, Global Market Strategist for J.P. Morgan Asset Management.

    But as investors digested the details of the program it became more clear that the ECB was accomplishing exactly what it intended to.

    This is really the bazooka people had been looking for in the past years, Lebovitz said.

    He said the sectors most likely to gain from the ECB move would be anything that benefits from a stronger European economy, with bank and other cyclical stocks leading.

    Banks led gains Thursday with the S&P 500 financials up 2.45 percent.

    Wells Fargo (WFC) and Bank of America (BAC) rose 3.2 percent and 4.4 percent, respectively.

    The Dow Jones industrial average (^DJI) rose 259.7 points, or 1.48 percent, to 17,813.98, the Standard & Poors 500 index (^GPSC) gained 31.03 points, or 1.53 percent, to 2,063.15 and the Nasdaq composite (^IXIC) added 82.98 points, or 1.78 percent, to 4,750.40.

    Shares in Europe jumped 1.6 percent to close at a seven-year high.

    After the closing bell, Starbucks (SBUX) shares rose 3.2 percent to $ 85.41 after sales at established restaurants in its Americas region were slightly stronger than analyst Charles Rosier estimate.

    American Express (AXP) was the largest points weight on the S&P 500, down 3.8 percent to $ 84.37, a day after it said it would cut more than 4,000 jobs this year as expenses and provisions for bad loans rose.

    F5 Networks (FIVE) slumped 10 percent to $ 113.40. The network equipment-makers revenue missed expectations for the first time in eight quarters. It also forecast current-quarter revenue and profit below estimates.

    Avon Products (AVP) shares jumped as much as 20.1 percent after Dealreporter said the company was in talks with private-equity firm TPG Capital about a potential transaction, citing three industry sources. Avon shares closed up 14.6 percent at $ 8.66.

    Volume was slightly above the norm with about 7.7 billion shares changing hands on U.S. exchanges, above the daily average of 7.27 billion so far this month.

    NYSE advancing issues outnumbered decliners 2,428 to 651, for a 3.73-to-1 ratio; on the Nasdaq, 2,015 issues rose and 746 fell, for a 2.70-to-1 ratio.

    The S&P 500 was posting 78 new 52-week highs and 5 new lows; the Nasdaq composite was recording 61 new highs and 73 new lows.

     

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  • 5 Surprises in Netflixs Latest Earnings Report

    Well played, Netflix. The premium video service moved nicely higher after posting better-than-expected quarterly results on Tuesday night. Youve seen the headlines. Youre read the reports. Lets dive a bit deeper into the information that Netflix put out to find things that may surprise you.

     

     

    1. Netflix Is Gaining More New Members Internationally

    The most noteworthy nugget in Netflixs report is that it closed out the year with 57.39 million streaming subscribers worldwide. Thats 4.33 million more digital subscribers than it had just three months earlier, and thats important because Netflix was only forecasting 4 million net additions. After falling short of its guidance during the third quarter a move that sent the stock sharply lower in October its refreshing to see it get back on track.

    Thats the headline number, but the interesting meat here is that most of that growth came from Netflixs expanding business outside of the United States. Its domestic base of streaming accounts moved 1.89 million higher during the final three months of 2014, but internationally we saw Netflixs base soar by 2.44 million. Thats a pretty big deal, especially since Netflixs international user base is just half as large as its stateside audience.

    2. Netflix Didnt Spend a Penny on Marketing its DVD Plans

    Netflix still mails out DVDs in red envelopes. People sometimes forget that. Its a fading legacy business, with the number of customers receiving DVDs and Blu-rays from Netflix diminishing with every passing quarter. Were down to just 5.8 million homes, far removed from its peak of nearly 20 million five years ago.

    An interesting line item in Netflixs financial statements is that it didnt spend any money to market its DVD rentals in 2014. It only invested $ 292,000 to promote the platform in 2013. It seems as if it has resigned to let its physical rentals fade to black quietly.

    3. Original Content Is a Good Value for Netflix

    Netflix is spending a lot of money on exclusive content, and the biggest shocker may be how successful it is when compared to existing shows and movies that make up the lions share of its growing digital catalog.

    Our originals cost us less money, relative to our viewing metrics, than most of our licensed content, much of which is well known and created by the top studios, reads Netflixs letter to shareholders.

    It may cost a lot of money to put out House of Cards or Orange Is the New Black, but when you divide that investment by the amount of times the content gets viewed, its cheaper than the theater-released movies and network-aired TV shows that Netflix licenses for its subscribers. Its no wonder Netflix and rival Amazon.com (AMZN) are ramping up the money that they are earmarking for proprietary content.

    4. Its a Small World After All

    Netflix has been expanding into foreign markets, and it hasnt come cheap. Netflixs international division has been posting losses that drag down its overall performance on the bottom line. Investors wondering when it will finally start to pay off in terms of profitability received some encouraging news on Tuesday.

    Netflix now believes that it will complete its global expansion by the end of next year, paving the way for it to start generating material international profits starting in 2017. Just in case you werent keeping up to date with Netflixs pushpins on the global map, it will roll out its service in Australia and New Zealand later this quarter.

    5. The Interview Is Coming

    Remember that Seth Rogen movie that nobody wanted to see until it seemed as if nobody would be able to see it? Sonys (SNE) The Interview will stream exclusively on Netflix starting on Saturday.

    The movie that was shunned by most multiplex operators after threats of violence began to trickle in last month will stream on Netflix just 30 days after its limited theatrical release. Its an unusually fast turnaround time, especially for a controversial flick that would seem to have more staying power at the retail level than in local theaters. The movie will only be available in the U.S. and Canada. It probably goes without saying that North Korea isnt on Netflixs list of markets that it plans to enter in the next two years.

    Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. Check out our free report on high-yielding dividend stocks. 

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  • Market Wrap: Stocks Gain as ECB Prepares to Flood Markets

    NEW YORK The S&P 500 and Nasdaq turned positive for the year as U.S. stocks rallied Thursday on the back of a larger than anticipated stimulus from the European Central Bank.
    The ECB will buy 60 billion euros worth of assets a month, more than markets had been hoping for, in a program that will last through September 2016.

    The choppiness seen early during the Wall Street session was due to some lingering questions about the effect of the announced measures on U.S. markets, said David Lebovitz, Global Market Strategist for J.P. Morgan Asset Management.

    But as investors digested the details of the program it became more clear that the ECB was accomplishing exactly what it intended to.

    This is really the bazooka people had been looking for in the past years, Lebovitz said.

    He said the sectors most likely to gain from the ECB move would be anything that benefits from a stronger European economy, with bank and other cyclical stocks leading.

    Banks led gains Thursday with the S&P 500 financials up 2.45 percent.

    Wells Fargo (WFC) and Bank of America (BAC) rose 3.2 percent and 4.4 percent, respectively.

    The Dow Jones industrial average (^DJI) rose 259.7 points, or 1.48 percent, to 17,813.98, the Standard & Poors 500 index (^GPSC) gained 31.03 points, or 1.53 percent, to 2,063.15 and the Nasdaq composite (^IXIC) added 82.98 points, or 1.78 percent, to 4,750.40.

    Shares in Europe jumped 1.6 percent to close at a seven-year high.

    After the closing bell, Starbucks (SBUX) shares rose 3.2 percent to $ 85.41 after sales at established restaurants in its Americas region were slightly stronger than analyst Charles Rosier estimate.

    American Express (AXP) was the largest points weight on the S&P 500, down 3.8 percent to $ 84.37, a day after it said it would cut more than 4,000 jobs this year as expenses and provisions for bad loans rose.

    F5 Networks (FIVE) slumped 10 percent to $ 113.40. The network equipment-makers revenue missed expectations for the first time in eight quarters. It also forecast current-quarter revenue and profit below estimates.

    Avon Products (AVP) shares jumped as much as 20.1 percent after Dealreporter said the company was in talks with private-equity firm TPG Capital about a potential transaction, citing three industry sources. Avon shares closed up 14.6 percent at $ 8.66.

    Volume was slightly above the norm with about 7.7 billion shares changing hands on U.S. exchanges, above the daily average of 7.27 billion so far this month.

    NYSE advancing issues outnumbered decliners 2,428 to 651, for a 3.73-to-1 ratio; on the Nasdaq, 2,015 issues rose and 746 fell, for a 2.70-to-1 ratio.

    The S&P 500 was posting 78 new 52-week highs and 5 new lows; the Nasdaq composite was recording 61 new highs and 73 new lows. 

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  • Can the Government Retroactively Take Tax Breaks Away?

    Tax planning is hard enough when you think you know the rules. But if you cant count on todays rules still applying tomorrow, trying to plan for the future becomes impossible.

    Thats the conundrum that many college savers find themselves in after the latest State of the Union address. Among the numerous tax proposals that President Obama included in his speech, one stands out as potentially having a big impact on the tax planning of parents trying to save toward their childrens college education. With the administration threatening to take away the tax break on two popular types of college savings accounts, one question many Americans are asking is whether the government can actually change the tax rules even after millions of families have relied on those rules in their financial planning.

    The Controversy Over College Savings Plans

    The State of the Union address included provisions to expand tax credits for education, increasing their maximum amount for some families and simplifying the patchwork of different breaks available for college and other educational costs. To help pay for these additional tax breaks, the proposal would take away some of the current tax breaks on 529 college savings plans and Coverdell Education Savings Accounts. Under current law, if you use 529 plan or Coverdell ESA money to pay for education, then any income and capital gains that the money in the account earned between the time you contributed it and when you used it is entirely free of tax.

    What wasnt immediately clear from the proposal is whether these changes would apply only to future contributions, or would be retroactively applied even to existing accounts. Interestingly, although many would see failing to grandfather existing 529 accounts and Coverdell ESAs as being unfair, theres legal precedent to support the idea that the government could indeed change the tax rules.

    The History of Retroactive Taxes

    Indeed, if the administrations proposal took the more aggressive approach, it wouldnt be the first time Americans faced a retroactive tax.

    • In August 1993, President Clinton signed a law raising tax rates on high-income earners and estates. The new rates applied back to the beginning of 1993, and although disgruntled taxpayers went to federal court seeking to have the retroactive application of the rules invalidated, those arguments proved fruitless.
    • In 1987, Congress passed laws retroactively repealing an estate-tax provision, a repeal which cost one taxpayer $ 2.5 million. The Supreme Court ruled that taxpayers have no right to rely on tax legislation being permanent, with the majority arguing that as long as lawmakers act with a legitimate legislative purpose, retroactive application is constitutional. Even though one Supreme Court justice argued that the government had used bait and switch taxation, he nevertheless concurred with the unanimous holding of the Court.
    • A 1976 tax-law change affected homeowners ability to shelter capital gains from the sale of a home from taxation. One homeowner took advantage of rules that allowed half of all gains to be free of tax, but six months later, President Ford signed a law retroactively limiting the taxable amount. Just as it did more than a decade later, the Supreme Court upheld the law as being constitutional.

    Beware of Public Opinion in Your Tax Planning

    Even if retroactive legislation is constitutional, the more important question the government always faces is whether its politically viable. In general, retroactive tax increases seem unfair, and public opinion will often prevent politicians from advocating such measures. With college savings plans, the administration is arguing that the accounts primarily help upper-income taxpayers, seeking to build political consensus to drive support for the measure and sweep any concerns over fairness under the rug of public opinion.

    Regardless of what happens with 529 plans and other education savings accounts, the lesson taxpayers need to heed is that tax laws that seem to be written in stone provide no guarantees of surviving future changes. With lawmakers having the right to rewrite tax laws at will, you must always remain mindful of possible revisions that can gut your financial planning.

    Motley Fool contributor Dan Caplinger wishes he could do a lot of things retroactively. You can follow him on Twitter @DanCaplinger or on Google+. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.​ 

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  • Advanced Micro Devices (AMD) Set To Release 2014 Q4 Earnings

    Advanced Micro Devices (NYSE:AMD) is set to post its Q414 quarterly earnings results on Tuesday, January 20th.   Analysts expect Advanced Micro Devices to post earnings of $0.01 per share and revenue of $1.24 billion for the quarter. Individual interested in participating in the company’s earnings conference call can do so using this link.

    Advanced Micro Devices, Inc. (AMD) of the Technology sector (Semiconductor – Broad Line) is down -0.84% already this morning, a change from open of -0.84%. Advanced Micro Devices, Inc. (AMD) is trading at $2.37 at a volume of 2,097,503 shares. Advanced Micro Devices, Inc. (AMD) has a weekly performance of – 9.130% and EPS growth this year of 93.10%. Advanced Micro Devices, Inc. (AMD)’S monthly performance stands at – 4.400% and has an analyst rating of 3.1, just over neutral.

    (Click To Expand Current Stock Data:)
     

    Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. It operates in two segments, Computing Solutions and Graphics and Visual Solutions. The company designs, develops, and sells microprocessors, such as central processing unit (CPU) and accelerated processing unit (APU) for desktop PCs, notebooks, tablets, hybrids, servers, and embedded products. It also offers embedded processor products for vendors in industrial control and automation, digital signage, point of sale/self-service kiosks, medical imaging, set-top box, and casino gaming machines, as well as enterprise class telecommunications, networking, security, storage systems and thin-clients, or computers that serve as an access device on a network. In addition, the company provides chipset products with and without integrated graphics processors for its desktop PCs and servers, APUs, notebooks, and embedded products. Further, it develops graphics and visual solutions products for use in desktop PCs, notebooks, tablets, professional workstations, servers, and gaming consoles. The company markets and sells its products under the AMD A-Series, AMD E-Series, AMD FX, AMD Athlon, AMD Sempron, AMD C-Series, AMD Z-Series, AMD Phenom, AMD Turion, AMD Opteron, SeaMicro, AMD Geode, AMD R-Series and G-Series, AMD Radeon, and AMD FirePro brands. Advanced Micro Devices, Inc. sells its products through its direct sales force and independent distributors, as well as sales representatives. The company serves original equipment manufacturers, original design manufacturers, system builders, and independent distributors. Advanced Micro Devices, Inc. was founded in 1969 and is headquartered in Sunnyvale, California. 

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  • Do We Need The State of The Union Anymore?

    Not to start too pessimistically, but let’s be honest with one another. The pomp and scale that surrounds Washington, D.C. is a skeleton of the past. That’s not meant to refer solely to the architecture, the fake-it-’till-you-make-it pretensions of a young country written in marble. It refers to much of the pageantry that we still embrace, beyond modern utility or necessity. It refers, to be direct, to the State of the Union Address.

    The State of the Union Address used to be the State of the Union letter, thanks, in part, to John Baird’s only having invented television more than a century into our nation’s existence. But even at the outset, the State of the Union was actually just “the state of the union,” listed in Article II of the Constitution in the spirit of a job requirements listing on a Craigslist help-wanted ad. The president, it reads, shall “from time to time give to the Congress information of the state of the union,” and also deal with ambassadors, and obey the law, and also be proficient in Microsoft Office.

    In 1789, it was perhaps useful to remind the president of the importance of keeping Congress (then numbering fewer than 100 people) up to speed on what was happening in the nation on the whole. The utility of that has declined significantly, what with Twitter and so on. Woodrow Wilson began the idea of giving those updates as a speech; Franklin Roosevelt made the State of the Union a spectacle. And once a spectacle is begun in Washington, D.C., it’s got inertia.

    By now, President Obama knows that there’s no utility to it. His poll numbers haven’t been helped by the speech; on average, his approval as measured by Gallup has been a point lower the week after his addresses, compared to the week prior. That’s not only a function of decreased viewership, since poll numbers have long been immune to SOTU boosts. But viewership is down, even over the last two decades. In 1994, Bill Clinton’s State of the Union appeared on four networks and was watched by 45.8 million people according to Nielsen; in 2014, Obama was on 13 networks and seen by 33.3 million — even though the country had added more than 50 million people in the interim.

    Even since 1994, the world has changed. Obama is eager for his ideas to be heard by the public that he’s embraced the fragmentation of the media, announcing his community college plan with a Vine and Facebook for his immigration action. After Tuesday’s speech, he’ll take questions from a category of people known as “YouTube stars,” one of whom is fond of green lipstick and whose 2012 video of her choking on cinnamon has been viewed 42 million times. (If you don’t feel like doing the math, that’s 126 percent of Obama’s live 2014 SOTU audience.)

    A bigger problem, though, is that Americans simply are no longer that impressed by the pageantry of the presidency. Everyone wants to meet Obama, sure; everyone wanted to get a beer with George W. Bush in the famous formulation. Confidence in the presidency at large, as measured by Gallup last year, was down from 1991 by over 40 points. Trust in government dropped precipitously and then flattened. It’s easy to dismiss Obama’s YouTube outreach as diminishing the status of the office, but only officeholders and those on Capitol Hill who seek it seem to offer it much status anymore

    That’s why we continue with the State of the Union Address. It gives the president an excuse to talk about his policy priorities, but he certainly doesn’t need to gather everyone together in the Capitol to do that. Senate Majority Leader Mitch McConnell already knows (and has likely already dismissed) Obama’s key policy goals — immigration, community colleges — even without Obama’s big address. We have the speech because the speech is a Tradition and that Tradition reflects the Importance of the Office. So Obama walks onto the House floor, passing through an effusive crowd of legislators as they imagine themselves making that same walk, and the Great Spectacle of Washington is upheld.

    Obama spent the last month doing everything in his power to do what he wanted while sidestepping the people he’ll be addressing on Tuesday. But still he’ll get in his car at the White House — Wolf Blitzer commenting in hushed tones over the live shot of him doing so — and trek to Capitol Hill. Because this is what happens in Washington, D.C. — because this is what has happened in Washington, D.C., and, let’s face it, politicians don’t come here to upset the apple cart. They come here to polish the right apples. 

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  • Blockbuster bonus for Disney CEO

    DISNEY Chairman and CEO Robert Igers compensation jumped to $US43.7 million ($A53.12 million) in 2014 as the company had a blockbuster year.

    Igers pay package was up 27 per cent from 2013, when he received $US34.3 million ($A41.69 million) in compensation. The change came in the form of a larger bonus: $US22.8 million ($A27.71 million), up 68 per cent from the year before.

    The company disclosed the compensation package Friday in its annual proxy statement filed with regulators.

    The Burbank, California, companys net income rose 22 per cent to $US7.5 billion ($A9.12 billion) in its fiscal year that ended Sept. 27, aided by strong performance for films including Frozen, Maleficent, and Marvels Guardians of the Galaxy and Captain America: The Winter Soldier.

    Marvels Guardians of the Galaxy.
    Source: Supplied 

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  • Putin’s bold conspiracy theory

    RUSSIA’S economy is on the brink of major crisis, hit by the double-whammy of a plummeting oil price and crippling western sanctions. And it’s no accident.

    Many believe the US is in the midst of a secret war with Russia, and that the current crisis is all part of a plot to drive Russian economy to the brink of collapse.

    Since June this year, the global price of oil has nearly halved, from a high of $US114 a barrel in June to just under $60 this week.

    Is the US behind the current Russian economic crisis?

    The rouble has largely tracked the oil price, plummeting in value to a historic low of 80.1 to the US dollar earlier this week, despite a desperate attempt by Russia’s Central Bank to stop the sell-off with an emergency interest rate hike.

    People wait in line at the IKEA store on the outskirts of Moscow. The collapse of the national currency triggered a spending spree by Russians.

    (Photo: Pavel Golovkin)
    Source: AP

    Retailers and currency exchanges have witnessed scenes of chaos as locals scramble to buy up imported goods and to swap out their fast-depreciating roubles for dollars and euros.

    The Central Bank has warned that if the oil price stays below $60 a barrel, Russia’s economy will contract by nearly 5 per cent next year. It has been estimated that for every $10 fall in the oil price, Russia’s GDP will be reduced by 2 per cent.

    Meanwhile, western sanctions for Russia’s role in Ukraine have prevented businesses from refinancing their debts in foreign capital markets, leading to currency selling to pay off debts before they become unsustainable.

    “This is a very dangerous situation. We are just a few days away from a full-blown run on the banks,” Russia’s leading business daily Vedomosti said in an editorial Wednesday. “If one does not calm down the currency market right now, the banking system will need robust emergency care.”

    The Russian rouble plunged to record lows this week, defying a 6.5-point interest rate hike. The Russian government vowed to defend the rouble.

    CONSPIRACY THEORY

    Vladimir Putin has blamed the west for the current crisis, and he’s not alone. While locals have likened it to an “economic war”, some western commentators agree.

    Earlier this year, back when oil was still at around $88 a barrel, New York Times columnist Thomas L. Friedman pointed the finger squarely at the US for the collapse.

    The “conspiracy theory”, widely accepted in Russia, is that the US and Saudi Arabia are colluding to keep production artificially high in a bid to drive the price down.

    “The net result has been to make life difficult for Russia and Iran, at a time when Saudi Arabia and America are confronting both of them in a proxy war in Syria,” he wrote. “This is business, but it also has the feel of war by other means: oil.”

    Just as they did to the last leaders of the Soviet Union, the Americans and Saudis are trying to “pump them to death”, he argues.

    That was before the November meeting of OPEC, the international organisation oil producing countries, when the Saudis blocked moves to cut production despite a huge global oversupply.

    Russian President Vladimir Putin has blamed the west for the current crisis. It is widely believed in Russia that the US is behind the plummeting oil price.

    The official explanation was that oil discounts would stimulate demand from slowing economies such as China, Japan and Germany, but the effect was to spark the beginning of a rapid plunge in the oil price.

    Just after the meeting, oil fell more than $6 to $71.25 a barrel, and has been sliding ever since.

    “What is the reason for the United States and some US allies wanting to drive down the price of oil? To harm Russia,” Venezuelan president Nicolas Maduro told Reuters before the OPEC meeting.

    Earlier this month, Iran’s President, Hassan Rouhani, said the sharp fall in global oil prices was the result of “treachery”, in an apparent reference to Saudi Arabia.

    Rouhani told a Cabinet meeting that the fall in prices was at least partly “politically motivated”, the result of a “conspiracy against the interests of the region, the Muslim people and the Muslim world”.

    His comments reflect concerns among Saudi Arabia’s rivals that the kingdom is capable of withstanding the revenue losses and is forcing lower oil prices to damage their economies.

    “Iran and people of the region will not forget such conspiracies, or in other words, treachery against the interests of the Muslim world,” he said.

    The global oil price has nearly halved since June, wreaking havoc on the Russian economy and the rouble.

    HAPPY COINCIDENCE?

    The other theory is that Saudi Arabia is simply willing to do anything to maintain its market share — with nearly $890 billion in the bank, they can afford to drop the price.

    “It’s more complex than saying the US and the Saudis have conspired and are now using this blunt instrument to hurt Russia and Iran,” said Dr Gorana Grgic, a lecturer in US foreign policy at the University of Sydney’s US Studies Centre.

    The fall in oil price is a result of a “perfect storm” of factors including a slowdown in China, Japan and Europe, rapidly increasing output by the US, and Saudi Arabia’s refusal to cut production, she said.

    “This is a beneficial consequence of the drop in oil price — sure, they want to weaken Russia and Iran because both countries have relatively high break-even prices for oil production — but it’s not the primary motivation.”

    Russians have scrambled to exchange their rapidly depreciating roubles for dollars and euros, fuelling the crash in the value of the currency.

    Dr Grgic says it’s natural for Russia to blame the US.

    “For Russia the west is the enemy. It’s very clear Putin is fighting the west and primarily the US, because any good dictator needs an enemy. For him this is a reflection of a greater western conspiracy to not let Russia be great.”

    And if the conspiracy theory is true, it may be counterproductive anyway, she adds. “This is clearly hurting Russia a lot, and it’s leading to speculation about how Putin is going to react. It may well mean more belligerence on foreign policy front, which is clearly counterproductive.”

    Jim Krane, an energy expert with Rice University in Houston, told US network NPR in October that figuring out Saudi Arabia’s motives was extremely difficult.

    “If you’re somebody who looks at geopolitics and energy, you could come up with any number of ways or any number of reasons why the Saudis are not doing what they would usually do,” he said.

    “There [are] lots of good reasons for them to keep on producing, but exactly why they’re doing it, probably only a few dozen people in Saudi Arabia know that.”

    frank.chung@news.com.au 

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  • What the oil collapse means

    THE price of oil has fallen by nearly half in just six months, a surprising and steep plunge that has consumers cheering, producers howling and economists wringing their hands over whether this is a good or bad thing. The price of a barrel of oil is just under $US58, down from a summer high of $107, and lower than at any time since the US was still in recession in the spring of 2009.

     

    So what’s going on? A global imbalance of supply and demand that is rippling across the world economy, for better and worse.

    SUPPLIES GO BOOM

    Years of high oil prices, interrupted briefly by the recession, inspired drillers around the world to scour the earth’s crust for more oil.

    They found it.

    Since 2008 oil companies in the US, for example, have increased production by 70 per cent, or 3.5 million barrels of oil per day. To put that in perspective, that increase alone is more than the production of any OPEC member other than Saudi Arabia.

    As US production was ramping up, turmoil in the Middle East and North Africa reduced supplies from Libya, Iran and elsewhere. A balance was struck: Increasing supplies from outside of OPEC and from Iraq’s recovering oil industry helped meet rising demand around the world as other OPEC supplies wavered.

    But now those OPEC supplies look more certain despite continuing turmoil, and those non-OPEC supplies have swamped the market. OPEC estimated last week that the world would need 28.9 million barrels of its oil per day next year, the lowest in more than a decade. At the same time, OPEC countries plan to produce 30 million barrels of oil per day next year. That supply surplus is sending global prices lower.

    Drillers around the world scoured earth’s crust for more oil this year. They found it.
    Source: AP

    DEMAND GOES BUST

    Global demand is still expected to grow next year, but by far less than many thought earlier this year. The economies of China, Japan and Western Europe — the top oil consumers after the United States — all appear to be weakening. Oil demand falls when economic growth stalls.

    The U.S. is still the world’s largest consumer, but more fuel-efficient cars and changing demographics mean demand for oil and gasoline is not increasing. The Energy Department predicts a slight decrease in gasoline demand next year even though the price is expected to be sharply lower and the economy is expected to grow.

    THE HAPPY CONSUMERS

    For drivers, shippers, airlines and other consumers of fuel, there’s nothing not to like about the drop in oil prices.

    The national average gasoline price has fallen for 81 straight days to $2.55 a gallon, its lowest level since October of 2009, according to AAA. It’s $1.15 a gallon cheaper than its high for the year, saving US households $100 a month as they shop for holiday presents. “Any time gas prices go down that is a good thing,” said Randy Daniels, 30, who was shopping recently at the Lenox Square Mall in Atlanta. “An extra 20 or 30 bucks in my pocket goes far.”

    Diesel and jet fuel prices have also plunged, helping boost the profits and share prices of airlines and shippers. Heating oil is the cheapest it has been in four years, reducing home heating prices just in time for winter for many in the chilly Northeast.

    For drivers, shippers and airlines, there’s nothing not to like about the drop in oil prices.
    Source: AFP

    THE WORRIED ECONOMISTS

    Falling fuel prices act like a tax cut and help boost consumer spending, which in turn accounts for 70 per cent of the US economy. But economists are growing concerned that there are other, more troublesome forces at play.

    The depth of oil’s plunge could be a signal that the global economy is struggling even more than economists think. A weak global economy could hurt the US economy by reducing exports, employment and spending, which together could outweigh the economic benefits of cheaper fuel.

    THE PRODUCERS’ PAIN

    For oil companies, oil-producing states, and oil-exporting countries, the oil price collapse is painful.

    Oil companies generally keep producing oil from wells they’ve already drilled, but lower prices sharply reduce revenue and force them to cut back spending on new exploration projects. BP announced last week it would try to trim $1 billion in spending next year in a move that analysts say could result in thousands of job cuts.

    States that rely on taxes from energy production such as Alaska, North Dakota, Oklahoma and Texas will see lower revenues and some have already had to trim budgets.

    Major oil exporters such as Iran, Iraq, Russia and Venezuela rely heavily on revenues from state-owned oil companies to run their governments and are struggling under major budget shortfalls. For example, Bank of America estimates that every $1 drop in the global price of oil costs Venezuela $770 million in annual revenue. Current prices are now $46 below last year’s average, putting the country on pace for a $36 billion reduction in revenue. 

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