January’s oil volatility pushed VTP volumes to record high

Volumes traded on the Austrian VTP natural gas hub during January reached an all-time high and almost doubled from one month earlier. The increase might have been a result of speculative traders reacting to a volatile oil market.

A total 46TWh were traded on the VTP during January, up from 24TWh in December 2015. January 2015 recorded 16TWh of gas dealing on the over-the-counter (OTC) market. Growth on front-month, front-season and front-year contracts made up most of January’s gains.

Throughout January many European gas markets, including the VTP, were directed by volatile oil prices that encouraged speculative trading. Market participants took short positions amid bearish oil prices at the beginning of the year.

However, “oil corrected [upwards] later in January which might have shaken awake buyers that were short,” one trader active on the VTP said.

Gas curve contacts can mirror developments in the Brent crude market as some long-term gas delivery deals are indexed to the oil price. If oil-linked supply contracts offer a better deal than buying OTC, gas hub prices fall.

The biggest VTP volume increase was noted on the 2017 delivery contract with 5.2TWh traded during January, up from 0.1TWh in December.

The Cal ’17 contract price fell to €14.013/MWh on 20 January before regaining strength at the end of the month, tracking development in the oil market.

Doubled volumes from December to January were also a result of the Christmas lull.

“In terms of volume, December might have been weaker due to the holiday break. The majority of deals were conducted earlier to cover the period,” a trader said.

Trade during November amounted to 36.31TWh, confirming that traders might have closed deals to go on holiday. In comparison, an average 27.5TWh traded each month during Q4 ’15.

The role of the VTP

The annual traded volume rose sharply during 2014 to 377.79TWh but dropped 17% in 2015, according to ICIS trade data. Some traders active on the market saw this as a sign of Austria’s changing role in the wider European gas economy.

“The VTP is not strong enough to be a proxy market anymore in the region,” another trader active on the hub said. Traders agreed that curve contracts are increasingly hedged on Europe’s most liquid hub, the TTF, and spot contracts are covered on the respective domestic markets.

EU regulation has integrated gas markets and made domestic and cross-border trade more transparent and efficient. As a result, the VTP’s position as a reference hub in the region is softening as the Italian, Hungarian and Slovak markets have drawn away some liquidity in the previous year.

January’s rebound might have been only a temporary trend that spurred speculative trading activity. marcello.kolax@icis.com