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Italy: Natural gas curve falls with Brent; spreads with TTF down

09 May 2012 19:28:15 | esgm

The Italian natural gas curve declined week on week on Wednesday, taking direction from the steady decline in Brent crude values. However the near curve ticked up day on day, gleaning support from the TTF hub.

In the past seven days, political changes in France and Greece increased uncertainty across the eurozone and pressured the Brent crude oil front-month contract. This contract shed about $6/bbl week on week on Wednesday, from $118/bbl to about $112/bbl.

Consequently the PSV plunged with the Brent crude as the other main component of the Italian contracts' formulae, the euro-dollar exchange rate, also contributed to the bearish picture.

The Gas Year '12 product traded on 3 May at €31.50/MWh, for the second time ever on the PSV and for the first time in the gas year 2012 - at the same level it first traded on the Italian market on 1 June 2011. However, the front year was assessed at €30.85/MWh, following the Brent crude's decline. This was in line with the other long-term contracts' decreases.

Winter '12 was the biggest faller, decreasing week on week by €0.95/MWh, to settle at €32.30/MWh.

One source said that the interest in the new gas year could have been driven by contracts' renegotiations, which are taking place in this period. This will be likely to boost liquidity for the new gas year's products in the short term.

Closer in, prompt and near-curve contracts, despite remaining strong day on day, tracking the Dutch hub equivalents, decreased in value in the past week.

Q3 '12 was the most liquid contract in the week ending on Wednesday, changing hands six times for a total of 300MW. The front quarter closed at €28.65/MWh, shedding €0.25/MWh week on week.

BOM was assessed at €28.40/MWh, having traded at €28.40/MWh on 8 May. Sources justified the interest in this product in the opportunity to trade its spread with its equivalent at the Baumgarten hub. However one trader pinpointed that the reason behind these deals could be beyond pure trading because many participants trade the PSV to balance their positions.

The TAG's (Trans Austrian Gasleitung) auction, which will be held on 14 May (see ESGM 30 April 2012), seemed to not be of so much interest for traders. The main reason being that the spread with Baungarten's Summer contracts is almost flat and a bearish sentiment prevails.

"If the starting bidding price is similar to the daily capacity available on the market, since the spread [with Baumgarten] is very thin and since the market seems to have a bearish trend now, it would be more profitable and easier to buy on the PSV, thereby avoiding long-term commitments and transportation issues". Another dealer added that could be of some interest only for balancing purposes.

Spreads with the Dutch equivalent contracts tightened week on week along the whole gas curve, with the exception of the BOM. DR

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