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Gas prices higher and higher

 
07.02.2012

In the space of less than two weeks, European day ahead gas prices have spiked USD 200-250/mcm (USD 5.7-7.1/mmbtu), and in the case of the French market (PEG), by over USD 300/mcm (USD 8.5/mmbtu). That move included a further leap in price yesterday of anything up to 16% DoD, depending on the market. The most recent price moves are now beginning to lead to more clearly differentiated prices between European hubs, with day ahead gas pricing ranged at anything from USD 507-627/mcm (USD 14.4-17.8/mmbtu). In all cases, one month gas remains relatively subdued by comparison.

Meanwhile, Brent has added USD 6/bbl in a week, while WTI has fallen slightly. The explanation for the move in the European gas price seems fairly straightforward: cold weather and some level of strain in the supply system. The move in oil prices is more perplexing. WTI continues to price effectively as an independent market. While Brent differentials to other crudes have moved a bit, trade exposed crudes have all increased quite sharply in price and Urals has moved from a small discount to a small premium to Brent. The only visible supply disruption in the market has been the loss of around 200mbd of supply from South Sudan following its decision to cut output rather than continue to export via Sudan over those countries’ bitter dispute about an appropriate pipeline tariff. The rhetoric over Iran does not seem to have got any hotter, although perhaps the escalation in violence in Syria is broadening vaguer concern over Middle Eastern risk. While we remain sceptical about the sustainability of high oil prices in what looks like a fundamentally oversupplied oil market, and winter is moving toward spring, current high prices are supportive of oil and gas share performance, we believe.
Colin Smith
VTB Capital analyst

Tags:
Europe, oil, Africa, Iran

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