Low oil prices may boost UK gas storage next winter

March 30 (Reuters) - Refilling Britain's biggest gas storage site, Rough, for next winter may still be feasible following a temporary capacity cut, as low oil prices could make it affordable to boost inventories later in the year, Italian bank Intesa Sanpaolo (Swiss: ISP.SW - news) said on Monday.

Last week utility Centrica (LSE: CNA.L - news) idled nearly 30 percent of Rough's storage capacity until October to test wells.

The move raised the risk of price spikes next winter as Britain relies on stored reserves to help meet peak demand.

Inventories are typically replenished during summer months when prices are low, and by October, which signifies the start of the winter gas season, rising prices start to make refills unprofitable.

But low oil prices may allow British utilities to continue refilling Rough beyond October due to the lag with which the oil price drop will work through into long-term gas contracts, Intesa Sanpaolo analysts said in a note.

Long-term gas supply deals in mainland Europe are widely linked to crude oil prices, with a three to six-month lag, which could keep a lid on gas prices for longer.

This could give gas traders a head-start to refill that portion of Rough which will be unavailable in summer.

Gas prices for next-winter had risen sharply ever since Centrica first flagged potential for capacity reductions at Rough.

Prices fell back slightly following the announcement on Friday, signalling that earlier gains had been overdone.

"However, the winter contract retraced on Friday amid expectations that technical issues will be solved and storage capacity could even increase by the fourth quarter, allowing to stock gas at relatively favourable prices due to the lag with which the oil price drop will be transferred to oil-linked contracts," the bank said.

(Reporting by Oleg Vukmanovic, editing by David Evans)