Gas and oil markets have been extremely volatile this week. For example, the UK April gas contract reached 171.00 p/th on Tuesday morning, more than doubling from Friday’s level. With the exception of low gas storage levels (currently at 29.9%), underlying fundamentals remain broadly bearish. Industrial demand is weak, weather conditions are mild, and global LNG supply continues to grow. However, the de facto closure of the Strait of Hormuz, together with attacks on energy infrastructure in the region, has raised concerns about a potentially severe supply disruption. Volatility is likely to remain elevated in the coming days and weeks. The key questions for the market are how quickly the Strait of Hormuz can reopen and whether Qatari production facilities will suffer significant damage. A prolonged disruption to exports from the Persian Gulf (lasting several months or more) would likely trigger another energy crisis. Conversely, a resumption of LNG exports within a few weeks would likely push gas and power prices back to (or even below) last week’s levels, given the currently weak fundamentals.
Economic Environment
- British retail sales rose 1.8% in January from December, exceeding expectations and marking the largest increase since May 2024, driven partly by strong sales of artwork, antiques and online jewellery, according to the Office for National Statistics.
- Further signs of resilience emerged in the UK labour market, with starting salaries for permanent staff rising at their fastest pace in nearly 18 months in January, while the slowdown in hiring appears to be easing, according to the latest Report on Jobs from KPMG and the REC.
- In contrast, German consumer sentiment is projected to weaken in March, with a larger-than-anticipated decline as households scale back spending intentions amid geopolitical tensions and uncertainty over the direction of social policy.
Oil
- Global oil prices consolidated near six-month highs in February, supported by heightened US-Iran tensions and the associated risk of supply disruptions through the Strait of Hormuz (a key chokepoint for roughly 20% of global oil flows), sustaining an estimated $8–$10 per barrel geopolitical risk premium. Prices traded within a $7.50 range over the month and finished up 5%.
- Meanwhile, OPEC+ is likely to consider increasing its oil output by 137,000 barrels per day in April, following a three-month pause in production increases. The move comes as peak summer demand and ongoing tensions between the US and Iran are expected to support prices.
Gas
- Golden Pass LNG, a joint venture between Exxon Mobil and QatarEnergy, ramped up gas intake to 300 million cubic feet per day as it moves closer to starting production. The 18 million tonnes per annum facility, located in Texas, will be one of the largest US export plants once fully operational, with Exxon’s CEO recently saying output would begin “in very early March.”
- China continues to import LNG from the sanctioned Russian Arctic LNG 2 project: the LNG carrier Arctic Vostok departed the Tieshan terminal at the Port of Beihai (Guangxi, southern China) on 24 February, having arrived a day earlier. It is the sixth Russia-linked LNG carrier to call at the Tieshan terminal so far in 2026.
- Exceptionally mild weather for this time of year, combined with strong wind generation, has slowed the pace of gas withdrawals from European storage. Inventories are currently 30.2% full, marking a 10.8 percentage point decline month-on-month and nearly 10 percentage points below the level recorded at the same time last year.
Power
- The EU Emissions Trading System (ETS) is facing strong political opposition, increasing the likelihood of reforms. Proposed changes include slowing the pace of cap reduction from 2028, extending free allocations beyond 2034, and adjusting the Market Stability Reserve to moderate prices. Pressure is being driven by competitiveness concerns, with several member states (including Germany) calling for significant reform.
- Sentiment has weakened further following reports that an alliance of energy-intensive industries is urging the EU to cap wholesale power prices for industrial users at €50/MWh and to extend indirect ETS cost compensation beyond 2030.
- CRE and Ofgem said conditions are not currently in place to approve a new France-UK interconnector, following a February 2025 commitment to discuss the conditions required to enable a 1 GW increase. The two countries currently share 4 GW of interconnection via IFA (2 GW), IFA2 (1 GW) and ElecLink (1 GW), with several additional projects under development by private promoters.
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