Keep knowledgeable with free updates
Merely signal as much as the Power disaster myFT Digest — delivered on to your inbox.
European fuel merchants count on costs subsequent summer time to be greater than the next winter, an uncommon wager that displays the steep value of refilling the continent’s storage services because it tries to wean itself off Russian provides.
Pure fuel in Europe has traditionally tended to be cheaper in the summertime when demand is decrease. That has incentivised merchants to purchase within the hotter months and retailer fuel to promote at a revenue throughout the winter peak heating season.
Nevertheless, fuel for supply subsequent summer time is now being priced at a file premium to the winter that follows. That hole displays an expectation that Europe will draw closely on its fuel storage throughout the present winter, and can then have a tough time restocking in the summertime months.
The irregular value relationship “is itself exacerbating worries about how Europe will handle to fill storage in summer time 2025,” stated Natasha Fielding, head of European fuel pricing at Argus Media, a pricing company.
Costly summer time fuel “removes the industrial incentive” to rebuild stockpiles, she added.
In late November, the worth of the European benchmark Title Switch Facility in the summertime of 2025, assessed by Argus, traded at a premium of greater than €4 per megawatt hour to the winter 2025-26 value, the most important premium ever to the winter value presently of yr.
Russia shut down nearly all of its pipeline gas supplies to the EU within the run-up to and aftermath of the invasion of Ukraine in 2022.
In response, Brussels introduced in a rule requiring member states to fill their fuel storage to 80 per cent of capability by the beginning of every November. Merchants say the EU goal, which has since been raised to 90 per cent, was pushing summer time costs greater.
The mandate was not a problem prior to now two years as Europe exited winter with file fuel storage ranges, lessening the size of the summer time top-up operation.
However analysts are expecting Europe to exit this winter with decrease ranges of fuel than the earlier two, and doubtlessly a lot decrease if a lot colder climate units in.
The EU’s fuel was 86 per cent full as of Wednesday, 10 share factors beneath the identical time final yr. The speed of drawdown of reserves from the beginning of winter — sometimes October within the fuel market — is at its quickest since 2016, in accordance with information from Fuel Infrastructure Europe, an business physique.
Merchants are additionally bracing for a halt to Russian provides coming by means of Ukraine, one of many two remaining pipeline routes to western Europe, when a transit settlement expires on the finish of the yr. The opposite route, by way of Turkey, can also be affected by US sanctions on Gazprombank, the lender that handles the majority of Russia’s abroad power income.
If the summer time value premium persists, EU regulators are more likely to mandate the acquisition of extra fuel, stated analysts at consultancy Power Features.
On the top of the power disaster in 2022, some European governments ordered home firms to purchase fuel from the worldwide market at file excessive costs with the intention to meet the storage mandate.
The excessive summer time fuel value is a mirrored image of merchants “speculating that the federal government will intervene once more and fill storages at no matter value, even whether it is unprofitable”, stated a fuel dealer.
