Short-term power prices averaged higher at the start of the month amid lower renewable generation across north-west Europe, with UK spot prices up nearly 13%, however, wind output aided a small recovery, alongside well above-normal temperatures.
Price direction in longer-dated contracts remained closely tied to developments in the Middle East, with gas, power and oil prices falling on hopes of the current ceasefire holding and further de-escalation. This leaves the current outlook highly uncertain, risks are skewed to the upside while the conflict continues, with ongoing disruption potential to energy infrastructure, however the reopening of the Strait of Hormuz, by contrast, would likely push prices sharply lower.
The announcement of the US-Iran ceasefire triggered a sharp reduction in risk across the energy markets, further supported by Qatar beginning preparations to restart LNG production, however, a full ramp-up remains dependent on secure export routes and a more durable resolution, with near-term volumes likely limited until confidence in sustained Hormuz access improves. The lack of meaningful recovery in Hormuz transit flows highlights that physical constraints remain unresolved, with shipping activity still heavily restricted despite the ‘ceasefire’ currently in place.
At the time of writing, no LNG carriers have yet transited the Strait of Hormuz following the ceasefire, with vessels reportedly awaiting clarity on insurance, payments, and newly introduced Iranian transit tolls. This highlights that, despite improved sentiment, physical flows remain constrained, limiting the extent of downside across European gas markets. Reports suggest that Iran is seeking transit fees of up to $2 million per vessel for shipments passing through the Strait of Hormuz, as part of proposed arrangements to reopen the vital waterway. The charges would be selectively, rather than uniformly applied, and remain subject to ongoing negotiations, with international shipping groups and regional governments disputing their legality. If such fees were applied, they would almost certainly target LNG and seaborne crude shipments.
Flows from Norway have also reduced due to planned maintenance at the Troll terminal, cutting supply to the Continent and UK. While LNG send out remains stable, lower pipeline imports and slightly higher demand expectations introduce modest tightening in the near-term, offering underlying support to prices already strained by the conflict in the Middle East.
If you have a gas or electric contract due or rapidly approaching, the decision is to either take advantage of the current reduction in the markets and fix now, or gamble that the ceasefire holds and prices continue to fall with the reopening of the Straight of Hormuz, bearing in mind that should the ceasefire fail, prices will escalate quickly. We would recommend seeking immediate advice from your supplier or energy consultant/broker to discuss your options.
