Sunday, November 30, 2014

As Oil Prices Fall, What Happens Next?

  • Last week, the Organization of the Petroleum Exporting Countries (OPEC)announced that, while global oil supply may be exceeding demand, it would not cut production.
  • The news triggered a significant decline in the price of oil, dropping over 12% last week and down over 30% for 2014. The news also negatively affected the stocks and bonds of a broad set of global energy players.
  • Leonid Fedun, vice president and board member at OAO Lukoil in Russiasaid, “The [U.S] shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish” and “in 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,”
  • Note: OPEC (whose members include IraqKuwaitIranSaudi Arabia,United Arab Emerites and Venezuela) accounts for about 40% of global oil production.
MY TAKE
  • The price of oil is driven by a complex mix of geopolitical and economic dynamics.
  • It is likely that OPEC (led by Saudi Arabia) has several objectives for driving oil prices down including 1) the desire to cripple U.S. shale/ fracking production efforts, 2) punishing Russia, whose economy is very sensitive to the price of oil for its invasive efforts in Ukraine, and 3) destabilizing ISIS, which finances much of its operations from the sale of oil.
  • Lower oil prices will likely have a negative impact on U.S. oil-producing states such as Texas and North Dakota, and other oil dependent economies such as ColombiaVenezuela and Norway.
  • However, declining oil prices can lead to lower gasoline prices and provide an economic boost to many consumers and lower input costs for products that include oil based components
  • Bottom line – a prolonged period of depressed oil prices may increase stress on energy sector business models (including alternative energy) and lead to industry restructuringUnexpected collateral damage may also occur

Sunday, November 23, 2014

The NSA, the Freedom Act and Privacy Rights

  • Last week, the U.S. Senate voted 58-42 for the Freedom Act (60 votes were needed for the bill to pass).  The act’s intent is to 1) end the National Security Agency’s efforts to collect the phone records of millions of Americans not suspected of a crime, 2) require government disclosure of the number of people whose data have been collected and report how many were American citizens and 3) create a panel of privacy and civil liberties advocates to review spying requests submitted to the Foreign Intelligence Surveillance Court.
  • Supporters of the bill included the Obama administration and technology companies such as Apple, Dropbox, Facebook, Google, LinkedIn, Microsoft, Twitter and Yahoo
  • Senate Judiciary Committee Chairman Patrick Leahy (and co-sponsor of the bill) said, after its defeat "If we do not protect our Constitution, we do not protect our country and we do not deserve to be in this body."
  • Senate Minority Leader Mitch McConnell said "At a moment when the United States is conducting a military campaign to disrupt, dismantle and defeat (the Islamic State), now is not the time to be considering legislation that takes away the exact tools we need to combat (the Islamic State)."
  • Senator Marco Rubio said "As the rise of ISIL has demonstrated, the world is as dangerous as ever, and extremists are being cultivated and recruited right here at home…This legislation would significantly weaken and, in some cases, entirely do away with some of the most important counter-terrorism capabilities at our disposal, which is why I will not support it.”
MY TAKE
  • While the bill was weaker than most supporters had hoped for, its passage would have been the first time a law was in place to curb the NSA’s spying activities.
  • It is likely that many technology companies, U.S. citizens and global trading partners will continue to be concerned about the NSA’s reach. This will likely also drive demand for encryption and other privacy related solutions.

Sunday, November 16, 2014

Hey, Whose Internet is it Anyway?

  • Last week, U.S. President Obama said, “An open Internet is essential to the American economy, and increasingly to our very way of life. By lowering the cost of launching a new idea, igniting new political movements, and bringing communities closer together, it has been one of the most significant democratizing influences the world has ever known.”  In addition, “the time has come for the FCC to recognize that broadband service is of the same importance and must carry the same obligations as so many of the other vital services do. To do that, I believe the FCC should reclassify consumer broadband service under Title II of the Telecommunications Act.” 
  • In response, AT&T’s CEO  Randall Stephenson said it would slow down its investments in high-speed fiber-optic broadband networks and “We can’t go out and invest that kind of money deploying fiber to 100 cities not knowing under what rules those investments will be governed.” Comcast CEO Brian Roberts said, "We're trying to work with the FCC, Congress and the administration to forge an outcome all stakeholders can live with and doesn't harm the innovation cycle." Cisco System CEO John Chambers "It would be a very disappointing end result if we moved back to regulation of the Internet like we did voice many decades ago…If [Internet Service providers] can't make money on broadband, they won't build it out." 
MY TAKE
  • The lack of satisfaction with U.S.  Internet service providers and the diminishing competition in this market has triggered significant debates and, among other things, led to the popular video “Last Week Tonight with John Oliver: Net Neutrality (HBO)” http://bit.ly/1rBJsP4. 
  • It is likely that oversight under Title II will be more benign than its supporters and detractors predict. 
  • While the Internet’s origins come from U.S. government funded projects, the road ahead will likely be driven by business interests - unless there is either increased consumer activism or a major disruption of service that would increase pressure for government intervention.