LONDON (ICIS)--A surge in crude oil futures contracts over recent sessions has propelled French PEG Nord summer gas contracts to sit above the front month, in a reversal of more traditional price curve patterns.
According to ICIS assessments, the PEG Nord July ‘18 contract rose steadily since the start of the month against the June ‘18 contract, and increased its premium to June ‘18 to €0.15/MWh on 15 May. Meanwhile, the August ‘18 contract followed a similar pattern and traded at an even greater premium of €0.20/MWh on 15 May.
The price increases are unusual when based purely on market fundamentals, which tend to be stable or even bearish over summer months demand is lower and market liquidity is comparatively thin. The August contract in particular is typically cheaper. In 2017 at the same point, the PEG Nord July ‘17 and August ‘17 contracts were trading at a discount to June.
But a spike in crude oil prices — geopolitical drivers have pushed the Brent front month contract up by 6% since the start of the month — has boosted curve prices in France and across European gas markets. In 2016, the PEG July and August contracts gained relative to the front month with crude again being the main factor behind the increases.
“I’m guessing the big increase of the last two days is due to crude,” one France-based trader told ICIS last week.
“The general increases, all the curve, it’s for the oil,” said another. Storage injections are being driven by the day-ahead price compared to the winter price, which is also being priced by oil, he said.
Gas demand for storage injections could also have a bullish impact on summer prices given that injections in France are expected to pick up to replenish stocks ahead of the winter.
Moreover, LNG cargoes arriving in France to be regassified and used to meet injection demand could be absorbed into Asian markets over summer months to meet demand for air conditioning there.
This would deprive France’s gas market of a potential supply source and place upwards pressure on prices, particularly in the southern TRS trading region, which is more dependent on LNG cargoes.
Market participants described current injection activity as ‘average’, with demand already priced in.
“The bullishness is not due to France. It’s just market conditions. It’s not that France is bearish but there’s nothing new,” a European trader said.