Market Report May 2026

UK & European gas markets are holding broadly steady; prices remain below recent highs amid relatively stable near-term fundamentals. Broader energy markets continue to take direction from geopolitical developments, with US-Iran relations remaining in focus alongside President Donald Trump’s summit with Xi Jinping in Beijing. Events closer to home with a potential leadership challenge to the Prime Minister following recent local election results, is also stoking  market instability.

The combination of strong renewable output and low seasonal demand has helped keep shorter-term power prices lower than expected but are still circa 20%+ higher than seen in February. By contrast, gas and oil markets have seen a sharp increase in volatility and for now, the Middle East remains the key driver, with risks of renewed military action and potential further damage to Qatari LNG infrastructure continuing to support the risk premium in gas contracts. Assuming an agreement can ultimately be reached between the US and Iran, and the Strait of Hormuz gradually reopens, combined with already weak gas and power fundamentals, European energy prices should continue moving back towards pre-war levels, but that is presently looking like a big ‘if’.

European gas storage levels have increased to 35.57%, although inventories are now tracking 15.87% below the 5-year average. The recent cooler weather across the UK and Europe is likely contributing to slower injection rates and a tighter near-term storage trajectory.

IN OTHER NEWS:

The UAE said it would leave OPEC from 1st May – citing a shift towards prioritising national interests and expanding production capacity. The move marks a significant structural rupture, though the immediate impact is limited due to the ongoing conflict.

EU gas demand is set to fall by 2.5% this year – pressured by high prices, persistent geopolitical risk and rising renewable output.

Japan will temporarily increase coal-fired power generation – to offset LNG supply disruptions caused by the closure of the Strait of Hormuz. The plan includes suspending for one year the 50% utilisation limit on coal-fired power plants, potentially reducing LNG imports routed via the Strait by 10%.

The European Commission has approved state aid schemes in Germany, Bulgaria and Slovenia to provide temporary electricity price relief for energy-intensive industries.

The UK services sector expanded further in April, with output recovering modestly after March’s sharp loss of momentum. Manufacturing also showed early signs of improvement, with output, new orders and employment trends all strengthening.

Energy independence part of Starmer’s reset in King’s Speech – At the heart of the programme is a new Energy Independence Bill which ministers say will accelerate homegrown renewables, speed up grid and infrastructure delivery and strengthen Britain’s long-term energy security, following the latest Middle East crisis. The government said “increased production of clean British energy” would stop hostile states attacking the UK’s economic security through global energy markets.

E.ON takes over OVO for undisclosed figure to create giant supplier – E.ON has agreed a deal to acquire OVO in a major shake-up of the UK energy market that would create a supplier with almost 10 million customers.