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Why is OPEC+ cutting oil production and what’s next?

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Global oil supply is set to tighten, intensifying concerns over soaring inflation after the OPEC+ group of nations announced its largest supply cut since 2020.

The move comes ahead of European Union embargoes on Russian energy over the Ukraine war.

Here is what we know:

What has OPEC decided and why?

The Organization of the Petroleum Exporting Countries (OPEC) and their allies, including Russia, on Wednesday agreed to slash output by two million barrels per day (bpd) just ahead of the peak winter season.

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The OPEC+ member states cut production starting in November after gathering for their first face-to-face meeting at their Vienna headquarters since the start of the COVID-19 pandemic.

The group said the decision was based on the “uncertainty that surrounds the global economy and oil market outlooks”. Saudi Arabia’s energy minister Abdulaziz bin Salman stressed the group’s stated role as a guardian of stable energy markets.

“We are here to stay as a moderating force, to bring about stability,” he told reporters.

Abdulaziz bin Salman said the real supply cut would be about 1 million to 1.1 million bpd, a response to rising global interest rates and a weakening world economy.

After the announcement, the price of Brent crude, the international benchmark, rose 1.7 percent, reaching $93.29 a barrel.

At the start of the year, Brent prices were close to $79 a barrel. It soared above $127 in March, two weeks after the Russian invasion of Ukraine – the highest in 14 years.

At the beginning of this week, Brent levels were at $88.86, with prices steadily falling in the past month over fears of a global recession.

Higher oil prices and a strong US dollar could represent a difficult situation as most countries buy their oil using dollars. The move could increase inflation and the cost of living.

INTERACTIVE - Brent crude futures price
 Brent crude futures price (Al Jazeera)

What comes next?

Swissquote analyst Ipek Ozkardeskaya warned the big cut could “backfire” on OPEC+ if investors fear it will push inflation higher and force central banks to hike interest rates so much that it triggers a recession.

“The higher the energy prices, the sharper the central banks must kill demand to pull the prices lower,” she said before the decision was announced.

The move could also put regions like Europe in a difficult position. Many European nations have imposed a price cap on Russian oil, but Putin has said Russia will withhold exports to countries that enforce the cap.

According to an analysis by the Financial Times, OPEC’s cuts could coincide with further falls in supply. Also, the move could hinder efforts to deprive Moscow of oil revenue following Russia’s invasion of Ukraine.

Professor Adam Pankratz, professor at the University of British Columbia’s Sauder School of Business, told Al Jazeera the price of oil will probably go up with the cut and oil is “going to be a scarce commodity”.

“That starts creating larger problems in terms of environmental policy for Europe. Should you be drilling for your oil? I don’t know, and they probably won’t, at least initially. But that is a realistic thing to ask,” he said.

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Analysts also warned against complacency over high European gas stores, which are nearly 90 percent full.

“With Europe’s winter season now in sight, gas markets are snug but by no means cosy,” Rystad Energy analyst Emily McClain said in a market note.

An early or extended winter could send gas stocks downward, pushing prices higher, she added.

The move by OPEC+ also prompted warnings from oil-importing emerging markets, some of which have become particularly vulnerable to price shocks amid recent global supply snags.

Sri Lanka is battling its worst economic crisis since its independence from Britain in 1948, with a plunge in its currency, runaway inflation and an acute dollar shortage to pay for essential imports of food, fuel and medicine.

President Ranil Wickremesinghe warned that Sri Lanka will have to pay even more for fuel as richer countries stock up for their own needs.

“This is not just an issue faced by us but several other South Asian countries,” he told parliament on Thursday. “Global inflation is going to hit us all next year.”

How has the world reacted?

That move triggered a sharp response from Washington, which criticised the OPEC+ deal as shortsighted.

The White House said US President Joe Biden would continue to assess whether to release further strategic oil stocks to lower prices.

“Saudi, UAE (the United Arab Emirates) and Kuwait are likely to take up most of the burden of cuts,” Tilak Doshi, managing director of Doshi Consulting, who was previously with Saudi Aramco, told Reuters.

“It’s a slap on Biden’s face by OPEC+,” he said, adding that ties between Russia and Saudi Arabia seem increasingly tight.

INTERACTIVE - OPEC oil production by country

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CIBC profit falls 18% on higher costs, loan-loss provisions; hikes dividend – The Globe and Mail

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Canadian Imperial Bank of Commerce CM-T reported an 18-per-cent drop in fiscal fourth-quarter profit and raised its dividend as the bank was hit by higher expenses and loan loss provisions.

The Toronto-based bank is the fourth major lender to report earnings for the quarter that ended Oct. 31, and the second to fall short of analysts’ profits estimate, along with National Bank of Canada. Royal Bank of Canada and Bank of Nova Scotia both reported earnings that were ahead of expectations.

CIBC earned $1.19-billion, or $1.26 per share, in the fourth quarter. That compared with $1.44-billion, or $1.54 per share, a year earlier.

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The bank’s results included several special charges, including a $91-million increase in legal provisions, a $37-million charge from consolidating its real estate portfolio, and $12-million of costs related to the bank’s acquisition of the credit card portfolio of retailer Costco in Canada.

Adjusted to exclude those items, CIBC said it earned $1.39 per share. That was far shy of analysts’ estimate of $1.72 per share, according to Refinitiv.

CIBC raised its quarterly dividend by two cents to 85 cents per share.

For the full fiscal year, CIBC’s profit fell 3 per cent to $6.2-billion.

In the fourth quarter, CIBC took $436-million of provisions for credit losses – the money banks set aside in case loans go bad. That was a significant increase from a year earlier, with $305-million of that total attributed to the bank’s personal and small business banking operations in Canada.

Some of the increase in provisions came from changes to the bank’s economic forecasts, which are more pessimistic. But CIBC also said it had higher write-offs and impaired balances in its retail portfolio.

Profit from Canadian personal and small business banking fell 21 per cent year over year to $471-million. Higher costs were a major factor, including expenses related to the Costco card portfolio acquisition, as well as higher employee compensation. Loan and deposit balances were up 10 per cent, but profit margins on loans fell five basis points from the previous quarter. (100 basis points equal one percentage point).

“CIBC had a big miss in the quarter and, while some of it related to higher provisions on performing loans, the bank’s domestic net interest margin contraction was disappointing,” said John Aiken, an analyst at Barclays Capital Inc., in a note to clients.

In the bank’s U.S. commercial banking and wealth management division, profit fell 37 per cent from a year ago, mainly driven by higher provisions for loan losses. Impaired loan balances were higher in the real estate and construction sector, as well as in oil and gas.

Profit from Canadian commercial banking and wealth was up modestly to $469-million, and capital markets profit was relatively unchanged year over year at $378-million.

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DoorDash laying off 1,250 people, about 6% of its workforce – CBC News

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DoorDash Inc. said on Wednesday it was cutting about 1,250 jobs, or six per cent of its total workforce, as the food-delivery company looks to keep a lid on costs to cope with a slowdown in demand.

DoorDash went on a hiring spree to cater to a flood of orders from people stuck at home during the height of the pandemic, but a sudden drop in demand from inflation-wary customers has left the company grappling with ballooning costs.

“We were not as rigorous as we should have been in managing our team growth … That’s on me. As a result, operating expenses grew quickly,” chief executive Tony Xu said in a memo to employees that was posted on the company’s website.

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“Given how quickly we hired, our operating expenses — if left unabated — would continue to outgrow our revenue.”

DoorDash has about 20,000 employees worldwide, and “some of the affected employees are based in Canada,” the company told CBC News in a statement, without elaborating.

The company joins a growing list of technology firms, including Amazon, Facebook-owner Meta, Twitter, Shopify and others that have laid off thousands of employees in recent weeks as they brace for a potential economic downturn.

British food delivery company Deliveroo said in late October that sales growth would be at the lower end of its previous forecast. In September, Winnipeg-based food delivery app SkipTheDishes laid off 350 workers.

Earlier this month, DoorDash reported a bigger-than-expected quarterly net loss of $295 million US, raising questions about the growth prospect of delivery firms as economies reopen. The company’s shares have lost two thirds of their value this year.

“Greater emphasis on its cost structure is a welcoming sign, especially given the potential for consumer spending to deteriorate faster than expected,” said Angelo Zino, analyst at CFRA Research.

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'I didn't ever try to commit fraud on anyone,' FTX founder Sam Bankman-Fried says – CBC News

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The man at the centre of collapsed cryptocurrency exchange FTX made his first public appearance since the saga began, telling a New York audience on Wednesday that it was never his intention to commit fraud.

Sam Bankman-Fried, the 30-year-old founder of FTX, appeared at the New York Times’ Dealbook Summit on Wednesday, for an interview with journalist Andrew Ross Sorkin about what happened to cause his cryptocurrency firm to collapse into bankruptcy earlier this month.

The firm, once worth more than $32 billion US, entered bankruptcy protection on Nov. 11 after a whirlwind series of days that saw it go from trying to solve a liquidity crunch by merging with a rival, to having that deal fall apart and succumbing to a run on the bank as traders pulled out $6 billion in funds within three days.

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Filings show the company owes almost $10 billion to various creditors, and at least $1 billion worth of customer deposits are missing. 

Among numerous allegations, customer deposits at FTX appear to have been used as capital and collateral for loans for an investment firm called Alameda affiliated with him — an allegation that amounts to fraud, and one that he pushed back against strongly.

‘Deeply sorry’ 

“I didn’t ever try to commit fraud on anyone,” he told Sorkin, “I didn’t knowingly co-mingle funds.”

While he acknowledged mistakes were made, Bankman-Fried rejected repeated attempts to characterize what happened at his cryptocurrency firm as being in any way malicious or illegal.

“I am deeply sorry about what happened,” he said. “I was excited about the prospects of FTX a month ago, I saw it as a thriving, growing business.”

Bankman-Fried has seen his personal net worth evaporate in the debacle, from more than $26 billion a year ago to “close to nothing” today — and he insisted that he doesn’t have any of the money that has vanished.

“I don’t have any hidden funds here. Everything I have, I am disclosing,” he said. 

“I’m down to one working credit card … [and] hundreds of dollars or something like that, in a bank account.”

WATCH | Former regulator weighs in on FTX debacle: 

Former regulatory executive weighs in on FTX collapse

19 days ago

Duration 4:04

Charley Cooper, a former executive at commodities regulator the CFTC, says the collapse of FTX is a good lesson of the inherent dangers of the cryptocurrency space.

He says, to his knowledge, there are enough funds at FTX to give users their money. But his hands are tied since he no longer has a formal role at the company since it entered bankruptcy proceedings.

“I believe that withdrawals could be opened up today and everyone could be made whole,” he said.

John Jay Ray III, the restructuring expert who has been handling FTX’s bankruptcy proceedings has said in legal filings that Bankman-Fried appears to have treated the company as his “personal fiefdom” and has called the fiasco a “complete failure of corporate controls.”

Bankman-Fried has been active on Twitter since the debacle first started, but his appearance on Wednesday marks his first public appearance since the saga began.

There was speculation he was going to appear in person, but ultimately he appeared via video link from the Bahamas, where he lives.

Legal problems

Sorkin asked Bankman-Fried if he did not appear in person because he is worried about being within the reach of U.S. agencies including the Department of Justice and the Securities and Exchange Commission, both of which are probing what happened at FTX.

Bankman-Fried appeared to side-step that question, remarking instead that, to his knowledge, he can still legally enter the U.S. 

“I’ve seen a lot of the hearings that have been happening [and] would not be surprised if some time I am out there talking about what happened,” he said, adding that he “does not personally think” he has any criminal liability to worry about.

That being said, he said his legal team is “very much not” supportive of his decision to appear at the summit and speak publicly about what happened at FTX. His lawyers advice was “to recede into a hole,” he joked.

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