Al-Badri: OPEC can ride out a slump in oil prices

Updated 14 December 2014
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Al-Badri: OPEC can ride out a slump in oil prices

DUBAI: Oil producers group OPEC can ride out a slump in oil prices and keep output unchanged, its head said on Sunday, arguing market weakness did not reflect supply and demand fundamentals and could have been driven by speculators.
Speaking at a conference in Dubai, Abdullah Al-Badri defended November's decision by the Organization of the Petroleum Exporting Countries to not cut its output target of 30 million barrels per day (bdp) in the face of a drop in crude prices to multi-year lows.
"We agreed that it is important to continue with production (at current levels) for the ... coming period. This decision was made by consensus by all ministers," he said. "The decision has been made. Things will be left as is."
OPEC policy remains a crucial factor in global economic prospects after Brent crude settled at below $62 a barrel on Friday, following a steep descent which hammered energy stocks and currencies exposed to crude exports.
The move left benchmark grades nearly half levels set earlier this year and doused appetite for riskier assets, pushing investors into the safety of government debt despite strong US consumer sentiment.
In a further reaction to slumping oil, stock markets across the Middle East fell sharply on Sunday, adding to a plunge in Gulf equity markets which has wiped out roughly $150 billion of value since the end of October.
Some say selling may continue as few participants are yet willing to call a bottom for markets.
But Al-Badri suggested the crude price fall had been overdone. "The fundamentals should not lead to this dramatic reduction (in price)," he said in Arabic through an English interpreter.
He said only a small increase in supply had lead to a sharp drop in prices, adding: "I believe that speculation has entered strongly in deciding these prices."
Asked if OPEC planned an emergency meeting before its next scheduled gathering in June, or a meeting with non-OPEC producers, Al-Badri said such meetings would not have an effect on oil prices.
OPEC had no target price for oil, Al-Badri said in a reiteration of policy, and urged Gulf states to continue investing in exploration and production, saying the United States would continue to rely on Middle East crude for many years.
Stopping new production projects would bring about a situation in which prices "will go back to $147 a barrel as in 2008. This was a result of a previous such situation," he said, recalling the potential market effect of a dearth in supply brought about by inadequate upstream investment.
Al-Badri said OPEC sought a price level that was suitable and satisfactory both for consumers and producers, but did not specify a figure. The OPEC chief also said November's decision was not aimed at any other oil producer, rebutting suggestions it was intended to either undermine the economics of US shale oil production or weaken rival powers closer to home.
"Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect," he said.
Al-Badri said OPEC members Iran and Iraq, their oil sectors restricted respectively by sanctions and insecurity, both had the potential to raise production, but significant increases were possible only after two or three years.
Adding to the effects of OPEC's unchanged production level, a lower demand growth forecast from the International Energy Agency further put the skids under oil on Friday, raising concerns of possible broader negative effects such as debt defaults by companies and countries heavily exposed to crude prices.
There was also talk of the price trend adding to deflation pressures in Europe, increasing bets that the European Central Bank will be forced to resort to further stimulus early next year.


Microsoft tops $1 trillion as it predicts more cloud growth

Updated 15 min 20 sec ago
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Microsoft tops $1 trillion as it predicts more cloud growth

BENGALURU/SAN FRANCISCO: Microsoft Corp. on Wednesday briefly topped $1 trillion in value for the first time after executives predicted continued growth for its cloud computing business.
The Redmond, Washington-based company beat Wall Street estimates for quarterly profit and revenue, powered by an unexpected boost in Windows revenue and brisk growth in its cloud business which has reached tens of billions of dollars in sales.
Microsoft shares rose 4.4% to $130.54 in late trading after the forecast issued on a conference call with investors, pushing the company ahead of Apple Inc’s $980 billion market capitalization. The companies and Amazon.com Inc. have taken turns in recent months to rank as the world’s most valuable US-listed company.
Microsoft’s stock has gained about 23% gain so far this year, after hitting a record high of $125.85 during regular trading hours.
Under Chief Executive Satya Nadella, the company has spent the past five years shifting from reliance on its once-dominant Windows operating system to selling cloud-based services.
Azure, Microsoft’s flagship cloud product, competes with market leader Amazon Web Services (AWS) to provide computing power to businesses.
Growth in that unit slowed to 73% in the third quarter ended March 31 from 76% in the second quarter. Mike Spencer, Microsoft’s head of investor relations, said the decline was roughly in line with the company’s estimate.
Christopher Eberle, a senior equity analyst with Nomura, said that with Azure, “one should assume a slower rate of growth as we move forward, simply due to the law of large numbers.” Still, Azure will bring in $13.5 billion in sales in fiscal 2019 with an overall growth rate of 75%, he estimated. “I can’t name another company of that scale growing at these rates.”
Microsoft tops tech rivals such as Amazon in market capitalization on some days despite having less revenue, partly because most of its sales is to businesses, which tend to be steadier customers than consumers. A growing proportion of Microsoft’s software sales are billed as recurring subscription purchases, which are more reliable than one-time purchases.
Microsoft’s earnings per share of $1.14 beat expectations of $1 according to IBES data from Refinitiv.
Windows licensing revenue from computer makers grew 9% year over year, beating expectations after a 5% decline in the previous quarter. Spencer said a shortage of Intel Corp. processor chips for PCs that many analysts expected to last into this summer had been resolved earlier than expected, allowing PC makers to ship more machines.
Microsoft’s “commercial cloud” revenue — which includes business use of Azure, Office 365 and LinkedIn — was $9.6 billion this quarter, up 41% from the previous year but down slightly from the 48% growth rate the previous quarter.
Microsoft’s so-called “intelligent cloud” unit, which contains its Azure services, posted revenue of $9.65 billion, above Wall Street estimates of $9.28 billion, according to IBES data from Refinitiv. Chief Financial Officer Amy Hood said that unit could reach $11.05 billion in revenue in the fiscal fourth quarter.
The “productivity and business process” unit that includes both Office as well as social network LinkedIn had $10.2 billion revenue versus expectations of $10.05 billion.
Microsoft’s latest results contained two weak spots.
Its gaming revenue was up only 5% versus 8% the quarter before, which Spencer attributed to less revenue from third-party game developers and the fact that many gamers are delaying purchases of Microsoft’s Xbox console because a new model is expected soon.
Sales of the company’s Surface hardware grew 21% versus 39% the quarter before, also because customers waited for updated hardware they expected to be released soon.
Total revenue rose 14% to $30.57 billion, beating analysts’ average estimate of $29.84 billion according to IBES data from Refinitiv.
Net income rose to $8.81 billion, or $1.15 per share, from $7.42 billion, or 96 cents per share, a year earlier.