Декабрь 2016
We continue informing you on the results of our activity and IFC specialists` perspective of situation and processes in the world and regional economies.
In December 2016 the assets value of the WellMax investment portfolio increased by 1.10% in USD and euro that is equivalent to 13.20% per annum. There was a 16.92% yield per annum in rubles and 13.8% - in yuans.
From December 10, 2016 till January 10, 2017 the assets value of the WellMax Premium investment portfolio decreased by 36.38% in USD.
From October 10, 2016 till January 10, 2017 the assets value of the WellMax Premium investment portfolio increased by 5.14% in USD.
The decline in assets value of the WellMax Premium investment portfolio was attributed to an extremely high volatility in the US market of natural gas. Natural gas is a season good, the consumption of which and finally the price largely depend on the temperature in the U.S. Mainland during the winter heating season.
As mentioned in the last economic review in November, we had earned from the natural gas price increase in the USA primarily related to the cold winter forecasts influenced by la Niña climate phenomenon. Up to the second half of December we had kept holding our gas long positions, however considering the beginning of price fall and the appeared information on weakening la Niña we closed them and redistributed the funds into DGAZ which grows when there is gas price fall.
Our decision was also based on the fact that at the date the tool monitored the February futures price and it was scheduled to redistribute the funds into the March futures. March traditionally marks the end of the winter heating season and, correspondingly, a sharp decrease in consumption that is to be followed with a price fall, in its turn.
The price of 3.4 USD per one million BTU of natural gas (the mid-December price) was rather attractive for blue fuel producers. In order to keep the price for shoulder season when spot price would fall down, companies should have hedged i.e. sold remaining volumes of gas on the stock exchange that would have resulted in the price fall. We expected that producers would hedge their volumes prior to the Catholic Christmas against possible price falling in late December when the stock exchange is closed for holidays.
However, in a few days after we had opened short positions, there was the information that a massive Arctic cyclone was approaching the US and it was able to bring an abnormally cold weather to the most part of the US territory. The meteorological reports release coincided with the US Department of Energy report on gas stock changes, according to which the week gas offtake outstripped the market forecast. A combination of these factors led to fast price growth of the February gas futures in the US during the last week of December.
Despite this sharp price increase, we have decided to keep our short positions open. In our opinion, this growth was completely speculated by simultaneously released several negative (for our positions) reports. Besides, the Arctic cyclone was forecasted by meteorologists for early January (i.e. a fortnight before). Thus, they could not be accurate, and the price reached year high level even more hastened the hedging of extra volumes by the producers.
In the latter end of December meteorologists published a forecast describing weather influence of the Arctic cyclone as too overestimated and predicting above the norm weather in the US in early January. This caused the price of the February futures to start its downward slide. As soon as the January warm weather forecast proved out at the beginning of the year, on January 3, the first working day of stock exchange the gas price fell down from 3.72 USD for a million BTU to 3.23 USD for a million BTU that has become the greatest fall for the last 3 years. The chart below demonstrates the dynamics of the February futures price (with arrows pointing at the mentioned above price ups and downs).
Present forecasts of various meteorological services are predicting far warmer weather in the US Mainland for a short-range and medium-range period. Thus, we are predicting a further gas price falling to 2.8 USD for a million BTU and lower in two following months. In its turn that will lead to a 35% and higher increase in the assets value of the portfolio that will let us not only cover the December losses but to grow the assets value comparing with November 2016.
The December increase in the assets value of the WellMax investment portfolio was caused by successful operations with silver, quotations of which were highly volatile that is shown in the chart below.
The stronger USD against currency basket of the US` main trading partners also had some passive impact over the price increase of our assets mostly nominated in USD.
In December there was an upward trend in oil market first and foremost related to the market confidence about the global agreement for decline in output observed by the producing countries.
According to the information released on January 12, in December 2016 OPEC reduced their crude oil output for the first time. According to S&P Global Platts analytical agency, in December the countries-participants reduced their crude oil output for 280 000 barrels per day (bpd) above November levels to 32.85 million bpd. The reduced output is first and foremost related to the dropped production in Nigeria and Saudi Arabia. Saudi Arabia reduced its output for 100 000 bpd to 10.42 million bpd. It was Nigeria where the main drop took place - last month crude oil production fell to 1.44 million barells per day there from November levels of 1.68 million bpd that is attributed to resumed actions of militants in the Niger Delta, not to the Vienna agreement fulfillment.
At the same time Iraq, the cartel`s second biggest oil producer increased the volumes for 70 000 bpd in December to 4.63 million bpd. It also came to light in early January that oil export from Basra, IRAQ`s southern oil field, reached the highest level of 3.51 million bpd in December. While Iraq`s oil minister Jabar Al Luaibi mentioned that the southern export high volumes would not impact the country`s decision to decrease output in January as it had been agreed by OPEC. According to Platts, Lybia also increased oil production for 40 000 bpd to the highest level over two years to 620 000 bpd.
Russia was the only country to follow suit of Saudi Arabia. Russia`s minister of energy Alexander Novak announced a decrease in output in early January ahead of the previously set up schedule. There are also unconfirmed reports of Kuwait dropping output in January.
On January 21-22 in Vienna the oil production monitoring ministerial committee under OPEC will hold its meeting that may lead to either drop or growth of quotations. However, once the market takes its lead from Vienna`s news, oil price may stay flat with down trend against increase in oil supplies and output growth in the USA and possible output growth in Nigeria.
IFC`s analysts suppose that the company`s open positions including gas short positions have good prospects to grow over two following months. Thus, we are forecasting significant growth of the assets value following the results of January-February 2017 that must surprise to the upside investors and partners of International Financial Community!
Now we are increasing our investments to get larger yield soon after. Join us!
Respectfully yours,
IFC team
