(Bloomberg) -- Gas options are indicating that traders are getting more confident Europe will have enough supplies this winter.
The so-called skew — which signals the cost of insuring against spikes or troughs in prices — is turning less bullish. It shows investors are paring their bets that prices will rise.
That’s a stark change from earlier this month, when traders rushed to buy protection after Ukraine’s incursion into Russia near a key gas transit point. Last week, before the change in sentiment, investment funds boosted their bullish bets to the highest in at least three years, according to the latest exchange data.
While geopolitical uncertainties remain, Europe is heading into the colder months with inventories almost completely full. Flows from top supplier Norway are also stable ahead of a heavy period of maintenance later this month.
The move in the skew — technically a move away from bullish call options toward bearish put options — coincides with futures trading near a two-week low after a spike earlier in August. While Ukraine’s incursion into Russia unsettled traders, many are now expecting flows through Ukraine to remain steady at least until the end of the year when a key transit deal expires.
A US push for a cease-fire between Israel and Hamas is also seen as bearish for the market.
Still, a colder-than-normal winter season in Europe could prove challenging, and the market remains extremely sensitive to supply disruptions. The net-long position held by investment funds in benchmark Dutch gas futures saw a five-week rise recently, including a 14% increase as of Aug. 16 — before the price rally lost its steam — according to data from Intercontinental Exchange Inc.
(Updates with ICE data on investment funds’ positions in third, final paragraphs)
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