Hello, dear participants of WellMax international system, clients, partners and investors of International Financial Community.

We continue to inform you about the results of our work and IFC specialists' vision of the processes in the world and regional economies.

In April 2017, the assets value of the WellMax investment portfolio increased by 1.09% in USD and EUR that equals to 13.08% per annum. There was a 13.80% yield per annum in rubles, a 11.64% yield - in yuans.

The assets value of the WellMax Premium investment portfolio decreased by 4.07% in USD over the period from April 10, 2017 to May 10, 2017.

While over the period from October 10, 2016 to May 10, 2017, the assets value of the WellMax Premium investment portfolio increased by 30.09% in USD.

The reason of last month’s decline in the assets value of the WellMax Premium investment portfolio was LNG price hike in the US, related in its turn to the announcement made by Australia’s Prime Minister Malcolm Turnbull at a meeting with the representatives of energy companies. He said that he did not exclude the possibility of imposing export restrictions on LNG amid domestic natural gas shortage in Eastern Australia.

Considering a relatively weak spring increase in the US natural gas supplies along with growing gas generation as a part to the US energy balance, we have directed our attention to the shares of American shale gas producers.  A comparatively low natural gas price for most of 2016 in the US has negatively influenced the revenue and profit of producing companies and led to downturn of their quotations. At the same time, a low shale gas production cost makes the present gas price sufficient to cover current expenses, finance debt obligations and develop investment programs. Besides, the companies, that we chose to invest in (Antero Resources Corp., SM Energy Co., QEP Resources Inc. and Southwestern Energy Co.), have hedged significant volumes of produced natural gas at the rate of around 3 USD per one million BTU and above. This will assure a necessary flow of money for the whole 2017 even in case of a downward price trend in the market.  

In the last month strong price movements have been observed in the oil market. As we had predicted it in the previous economic review, the oil price was much impacted by several negative factors and sank to a psychologically important rate of 50 USD per one barrel of Brent in early May. The significant drop was facilitated by the negative news background, observed in the oil market early in May.

Thus, on Monday, May 1, Libya’s national oil company National Oil Corp. (NOC) announced the increase in oil production up to 760 bpd, which is the highest level since December 2014. The output increase was facilitated by the restart of oil production and transportation from Libya’s El Sharara and El Feel fields. Previously, the transportation of crude had been halted due to a rival group having blocked the main pipeline, delivering oil from the fields to a refinery in the city of Zawia near Tripoli. In addition, NOC’s chairman Mustafa Sanalla declared the plans to increase Libya’s output up to 1.1 million bpd by August 2017. Considering the country’s internal political situation, which has been volatile so far, the chief’s plans look too optimistic, however, the announcement was certain to be bearish.        

Nigeria news has adversely affected oil prices either. On Tuesday, May 2, Maikati Baru, the operating officer of the state oil company Nigerian National Petroleum Corporation (NNPC) announced the increase in oil output in Nigeria up to 2 million bpd. By way of contrast, according to Reuters, April’s oil output amounted to 1.5 million bpd in Nigeria and to 0.55 million bpd in Libya for the same period      

In this context, Reuters survey results were treated controversially. According to the report (the table below), in April the OPEС countries were cutting the output (the four month in a row), however the figures were achieved mainly due to Saudi Arabia having hold oil production below its targeted level and halted deliveries in Libya and Nigeria. At the same time, the conformity level decreased to 90% of the revised 92% in March.    

Considering the above-mentioned increased output in Libya and Nigeria, and the plans to spread the production, it seems to be rather challenging to achieve the targeted level of 31.749 million bpd for the cartel.

Despite the fact that Libya and Nigeria had been released from obligations to cut output due to the war and political disruptions in the countries, which resulted in reduced production, the targeted level of 31.749 million bpd comprises the total production in all 13 members of the organization (including Libya and Nigeria). Assuming the OPEC-11’s targeted level to be 29.804 million bpd, 1.945 million bpd fall to the share of Libya and Nigeria (the report shows it). However, considering the last information, both of the African countries produce 2.760 million bpd. Thus, OPEC have to cut their own output by another 815 thousand barrels, which accounts for 70% of the necessary curbs under the arrangement (not including the probable increase in oil output in both of the countries).

At the same time, the US have been hiking oil output: according to the last information, it amounts to 9.314 million bpd, which is the highest rate since August 2015. While from the beginning of 2017, the country’s output has increased by 544 thousand bpd, which amounts to 52% of the OPEC-11’s curbs over the same period of time. The dynamics of oil output and the number of working oil rigs in the US are shown in the chart below. 

The above-mentioned negative factors raised concerns of the market participants regarding possible insufficiency of the taken steps for achieving a balance in the oil market. Besides, the information, published by Reuters on May 4, according to which, at the OPEC conference held in Vienna on May 4-5, two undisclosed representatives announced possible prolongation of the agreement but under the previous conditions, i.e. without imposing new curbs. This has triggered the drop in oil quotations.         

Trying to prevent the following oil price collapse, the countries participants of the output freeze agreement have commenced making more definite statements on its prolongation. Thus, on May 15, at the conducted in China 'One Belt One Road' summit, Khalid Al-Falih, Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, and Aleksandr Novak, Russia’s Minister of Energy, declared the necessity to prolong the arrangement up to March 31, 2018, i.e. for nine months instead of the previously discussed six months. This statement has made oil quotations soar and reach the level of late April.  

However, according to our analysts, a 3-quarter prolongation proposed by Russia and Saudi Arabia will not assure a steady growth of oil quotations in the medium term. For achieving and settling the price at the rate of 60 USD per barrel of Brent oil and more, the cartel will have to undergo extra reductions or attract other oil producing countries, e.g. the US, to enter the agreement.

As we stated in the previous economic review, significant price movements may be expected closer to May 25 when the OPEC countries hold a meeting in Vienna and in the first days after the conference. If the countries decide to prolong the agreement under the previous conditions, oil can raise to the levels of 56-57 USD per barrel of Brent oil in the short term. But it is hardly possible that the price will settle at the level in the medium term if the US keeps the present pace of increasing the output.

In the last month, movements of the Russian national currency exchange rate have been similar to the ones of the oil market: the weakening ruble of late April and early May showed a strengthening trend in late May, like oil did. At the same time, despite the possibility of the ruble's upward trend after the OPEC conference in Vienna, we consider an ongoing movement to be hardly possible for the currency in the medium term. We stick to our forecast predicting a gradual decline of the Russian currency by 10% and more by the end of this year/ the beginning of the next year.

According to the US Commodity Futures Trading Commission (CFTC), American hedge funds trading on the Chicago stock exchange have decreased ruble long positions almost by twice for the last two weeks. Among others, this says for the scenario predicted in our forecast. This is most likely to be a reaction on the increased verbal interventions of the Russian economic authorities aiming to weaken the national currency.

The ruble sell-off started in early April when Russia's President Vladimir Putin stated that the authorities were looking for the market ways to avoid the ruble excessive growth, and accelerated in early May when the Head of the Central Bank Elvira Nabiullina announced the possibility of the currency buying in the market. At the same time, Madam Chairperson declared the slowdown of inflation to 4% to be targeted by the Central Bank as a condition for the authorities to start currency interventions; though, the Ministry of Economic Development report this level to have been already achieved on May 15.

Thus, the Central Bank of Russia have strong arguments for both, starting interventions in the currency market and ongoing decrease in the key rate, which is to result in the gradually declining profit from ruble investments to the level of other developing markets. This will negatively influence the interest of foreign capitals for the Russian securities and currency.

Strong price movements have characterized the cocoa market for the last month either. After cocoa beans had sunk to the previous low levels, quotations of the agricultural crop started increasing in May amid disorders involving the army in Ivory Coast, the biggest world producer of cocoa beans. Toughening of the conflict between the central government authorities and the army along with the previously mentioned possibility of a poor future harvest can enhance the anticipated growth of quotations of cocoa in the medium term, as we mentioned it in the previous economic review.

By tradition, US President Donald Trump has recently been one of the main global newsmakers. On May 10, all of a sudden, he fired the Director of the FBI James Comey. It is interesting to note that among others Comey was investigating ties of Trump’s advisers and Russia. Although Trumps’ circle explains the dismissal citing Comey having interfered into political process and influenced Hillary Clinton’s ratings by commenting the FBI’s investigation, the public considers the dismissal as an attempt to cover tracks. Critics of the President have used this fact to compare this dismissal to Richard Nixon’s firing of Archibald Cox, a special prosecutor during the Watergate investigation. Considering the Head of the White House's low ratings and his conflict with leading American media organizations, the possibility of Trump’s impeachment has arisen for a serious discussion in the US, which may become a trigger for a growing volatility in the US stock market. However, Trump’s dismissal seems to be hardly possible in the medium term, since the Democrats do not have a majority in both chambers of the US Parliament.

At the same time, Emmanuel Macron’s victory of the presidential elections in France has significantly decreased volatility in European markets. The French Parliamentary Elections are scheduled on the 11th and 18th of June. Though the newly elected President will have to prepare for them in the shortest terms and virtually without a political party of his own, the chance of a Frexit has left the current political agenda. At the moment the German elections to the Bundestag, scheduled on September 24, 2017, do not pose serious risks to the Eurozone and its currency either, since both of the main candidates – Angela Merkel (CDU) and Martin Schulz (SDP) are the system politicians.   

Despite the above-mentioned political risks, related to Donald Trump and the escalating situation with North Korea, the sharp volatility has gone from the markets, and we are probably in for a summer period of low business activity. In spite of the expected decrease in volatility, the IFC team have a whole bunch of interesting investment ideas, including the above-mentioned shale gas producers in the US, as well as Gilead Science Inc., a pharmaceutical giant, and exchange-traded funds for robotics industry, which have good chances to significantly increase the price of their shares in the medium and long term. These factors will enhance our opportunity to make a pleasant surprise out of the portfolio yield for investors and partners of International Financial Community!