Next week's edition of European Panorama will be published on Tuesday 23 April, owing to the UK bank holiday.
The outlook for the European gas market is still being coloured by the price surge in the first week of April. Some of the overexuberance of that week’s gains, undoubtedly driven by some short-covering as the gas hubs reacted upwards to the surge in carbon prices, started to come out of the market last week as weak gas market fundamentals started to reassert themselves.
Europe is now forecast to return to seasonally normal weather, but demand will post another big y/y rise this week because of unusually low HDDs in mid-April 2018. Looking beyond this coming weekend, the fundamentals are not particularly supportive, as above-average temperatures are likely to mean an end to any early spring heating demand.
The LDZ demand boost helped start the process of nibbling away at the y/y storage surplus, dropping it from 25.3 bcm on 6 April to a still very high 24.8 bcm on 12 April. With demand set to fall seasonally, that does create another barrier to reducing the overhang, although we expect it to drop to 23.6 bcm by 27 April given fairly heavy injections in the second half of April 2018.
The supply side should also start to adjust to the change in seasonal demand. While LNG supply is still looking strong, Norwegian flows are expected to return to being flat y/y by the week starting 20 April, following a small incremental bump this week to meet higher demand. Russian flows have already risen, with the end of EuRoPol maintenance, but we should expect a hefty y/y decline over the next two weeks as customers have much less storage to fill compared to a year ago.
The upward move in carbon has supported the TTF fuel switch triggers, with the 10% trigger at 16.9 €/MWh and the 5% at 14.1 €/MWh at Friday’s close. The TTF May-19 contract retreated to close Friday at 15.8 €/MWh, down by 4.5% w/w, with the market getting back to the 7.5% trigger that it was trading around prior to the last two weeks. Still, we do think the European balances this summer will require gas prices to be around the 5% trigger, so that holds some downside potential for gas prices over the next few weeks.
While EU gas still has some weakening to do in relative terms, direction for flat prices still hinges on whether carbon continues the bull run it started or starts to retrace after two weeks of strong w/w gains. We do think we could see some profit-taking in the carbon market this week, although that is certainly not a given, as that market still has plenty of bulls in it despite short-term fundamentals not being all that supportive. Those less supportive fundamentals, however, could result in some testing of the downside this week, and that would allow gas prices to slide as well.
|Fig 1: Supply-demand outlook and storage forecast for NW Europe, mcm|
|Note: French exports include flows into Switzerland and Spain. A positive weekly storage movement indicates injection into storage, a negative move indicates withdrawal from storage.
Source: Country SOs, GIE, Energy Aspects