Europe's Mild Winter Comfort May Soon Fade

The mild European winters of recent years have provided a cushion for the region's heating demand, compensating for tight distillate supplies and below-average natural gas storage levels. However, this trend may soon come to an end as forecasters expect a return to normal winter temperatures.

Marcos Saggese, Vice President of Clearing and Execution Sales at StoneX, notes that the unusually mild winters have allowed European heating oil demand to be held down, but warns that if temperatures drop sharply, the tightness in distillate supplies would land directly on European heating buyers. 'In basic supply terms, we're probably looking at low supplies, but possibly not the demand that there used to be', Saggese said.

The forward curve shows no sign of panic pricing, with natural gas storage sitting below expected levels, although it's not just used for heating, but also for electricity production. This leaves European gas resting on the same weather assumption as diesel, with less room to absorb a cold winter than a rebuilding storage figure implies.