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European gas: Unusually cold weather continues

 
03.04.2013

European hub gas prices climbed above the USD 400/kcm (USD 11.5/mmbtu) mark in late March, the highest since late 2008, before adjusting lower at the start of April on the switch to the May contract. The recent high European gas prices likely reflect dwindling gas storage and stronger than expected demand amidst a colder than usual end to winter/start to spring.

Gas storage levels have plunged in Europe since the turn of the year, with gas storage at the UK’s NBP dropping as low as 6%. Low gas storage levels have come hand in hand with spikes in the day ahead gas prices (see RMC of 27 March).

The bitter cold which has prompted strong European demand is showing no sign of subsiding. As Figure 2 demonstrates, the number of Heating Degree Days (HDDs) which over the last 30 days have been higher than average for a number of European cities, are forecast to remain higher than the 30 year norm over the following week. In terms of HDDs since November, this winter has been colder than the 30-year average in a number of European cities — London has seen a 15% increase in HDDs over the norm, which would go some way to explaining the low gas storage levels.

We expect the present situation to ease with Spring finally arriving in Europe, as reflected in the lower May contract gas prices.

Elsewhere, net managed money futures and options positions on the ICE in Brent for the week ending 26 March were up a fraction, gaining 4,059 positions (+3.2%) WoW to 130,473 positions. Over the same period, Brent rose USD 1.91/bbl (+1.8%) WoW to USD 109.36/bbl. On the other side of the Atlantic, net managed money futures and options positions on NYMEX in WTI rose a sharp 26,861 positions (+15.6%) WoW to 199,129 positions. During that period, WTI rose USD 4.18/bbl (+4.5%) WoW to USD 96.34/bbl.

Colin Smith, Marc Jacouris
VTB Capital analyst

Tags:
Europe, gas, dollar

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