Energy Markets Remain Volatile as Middle East Tensions Continue

Market Update:

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• Yesterday’s bullishness arose from the expected US military retaliation to Iranian strikes, which has been conducted during the night.
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• In the meantime, the Al Areesh LNG vessel has transited the Strait of Hormuz successfully.
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• In the Bab el-Mandeb, traffic has improved again from some lower days last week. Overall, there appear no major news from the conflict that would give a clear direction for gas prices today.
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• Oil climbed more than $1 a barrel on Thursday in a volatile session as investors swing between focusing on escalating U.S. attacks on Iran and hopes for a resolution that may resume shipping in the Strait of Hormuz.
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• In spite of the latest attacks, early trading has seen the gas prices drop back somewhat.

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NATURAL GAS:
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In the UK, this morning the NBP front-month contract is currently trading at 144.0p/th at time of writing, this is a decrease of around 3 p/th. Despite prices softening overnight, elevated tension in the Middle East have left the market extremely volatile with any updates from the region causing high volatility.
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The key driver behind today's market remains developments in the Middle East. Tuesday's surprise Iranian strike against US military assets reignited concerns over regional stability and prompted traders to rebuild the geopolitical risk premium that had been removed earlier in the week. While there has been no further disruption to LNG exports or shipping through the Strait of Hormuz, the escalation has significantly increased market sensitivity to any further deterioration in the region. Given the Middle East's importance to global LNG supply, even the prospect of disruption has been sufficient to support higher gas prices.
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Away from geopolitics, storage injections are progressing steadily but remain below average, maintaining concerns over refill levels ahead of Winter 2026/27. Norwegian pipeline flows remain stable following the completion of planned maintenance, providing reassurance on pipeline supply. However, Europe's continued reliance on imported LNG means the market remains exposed to any disruption to global cargo availability, adding bullish sentiment to the market.
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Overall, supply fundamentals remain relatively stable, geopolitical developments continue to dominate market direction. With European storage levels still below average and renewed uncertainty surrounding Middle East energy security, the outlook for gas prices remains supportive. Volatility is expected to remain elevated, with prices likely to respond quickly to any further developments in the region.

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ELECTRICITY:
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European power markets have mirrored the trend seen across gas markets, with prompt contracts strengthening as higher gas prices feed through into wholesale electricity prices. After easing at the beginning of the week alongside gas, power markets have recovered following the return of geopolitical risk premium, with traders once again pricing in the potential for increased fuel costs.
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Underlying market fundamentals also remain supportive. French nuclear availability continues to sit below seasonal norms due to ongoing maintenance, limiting low-cost baseload generation and tightening European generation margins. Although renewable output remains relatively healthy, it has not been sufficient to offset the upward pressure created by stronger gas prices and renewed geopolitical uncertainty.
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In the UK, prompt power prices have followed a similar trajectory, recovering alongside NBP as gas-fired generation costs increase. Strong renewable generation continues to cap some short-term upside; however, tighter European generation margins and continued strength in the gas market are providing support to the broader forward curve.
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Overall, power markets remain firmly linked to developments in the gas market. While generation fundamentals remain broadly supportive, the primary driver continues to be geopolitical risk. As long as tensions in the Middle East remain elevated, both gas and power markets are likely to retain a bullish bias, with any further escalation expected to add additional upside support to prices.
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Latest Price:
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Latest Gas & Power Annual Chart:
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