The heatwave across much of Europe has increased cooling demand while also reducing river levels and raising water temperatures, keeping nuclear modulation risk elevated. Curtailments have been observed in France, as well as in Hungary and Romania amid historically low Danube levels. Together with weak hydro and wind generation, this has supported spot power prices. Day-ahead baseload averaged £124.31/MWh in the UK and €110.52/MWh in Germany over the week. Looking ahead, temperatures are expected to ease only gradually, staying around 4°C above normal until next Tuesday. Forward markets remained volatile as geopolitical developments continued to dominate. A brief pullback in prices proved short-lived following renewed military action, reigniting concerns over the return of Qatari LNG supplies. Against the backdrop of Europe's low gas storage levels, ongoing geopolitical uncertainty is likely to continue underpinning gas and power prices.
Economic Environment
• The latest S&P Global PMI survey showed that the UK construction sector remained in sharp contraction in June, although the pace of the decline eased slightly from May's six-year low as weakness in commercial building activity moderated.
• UK shop price inflation slowed to 0.9% y/y in July, the weakest increase since December 2025, as widespread summer promotions and World Cup-related discounts weighed on retail prices. Food inflation eased to 2.2%, while non-food inflation slowed to just 0.2%.
• The Federal Reserve kept interest rates unchanged, as did the BoE in a widely expected decision, as policymakers weighed easing domestic inflation against the risk that renewed hostilities in the Middle East could push up energy prices and reignite inflationary pressures.
Oil
• Global oil prices strengthened during July, with the front-month Brent contract trading within a wide $32/bbl range before ending the month 22.7% higher, as repeated military action in the Middle East and renewed concerns over the security of oil shipments through the Strait of Hormuz supported a geopolitical risk premium.
• Goldman Sachs maintained its fourth-quarter 2026 Brent forecast at $80/bbl, based on the assumption that tensions between the US and Iran ease by year-end. However, the bank raised its upside price forecast from $110/bbl to above $120/bbl should disruption to shipping through the Strait of Hormuz persist into the fourth quarter.
Gas
• TotalEnergies has shipped the first LNG cargo from Mexico's Energia Costa Azul export plant to Asia, marking the start of commissioning ahead of full commercial operations this autumn. The 3.25 mtpa facility is Mexico's first LNG export plant on the Pacific coast. TotalEnergies will be the sole offtaker during the ramp-up phase before taking 1.7 mtpa under a 20-year agreement.
• Egypt is reportedly seeking to secure 15 to 18 LNG cargoes per month under multi-year contracts, marking its largest LNG procurement programme to date. The move reinforces its transition from a seasonal buyer to a structural importer and is expected to further tighten the global LNG market.
• The ongoing disruption to LNG exports from Qatar, combined with a fourth heatwave across Europe, has slowed the pace of gas storage injections. Inventories increased by around 7.1 percentage points during July to 56.4%, leaving storage levels 11.6 percentage points below the same point last year.
Power
• Repeated heatwaves across Europe increased cooling demand while reducing river levels and raising water temperatures, keeping nuclear modulation risk elevated. The most recent spell of hot weather also led to curtailments in Hungary and Romania amid historically low Danube water levels. Together with weak hydro and wind generation, these factors supported European spot power prices.
• Water levels on the Rhine at Kaub are forecast to fall to around 24-25 cm today, close to the record low reached in 2018, reducing barge cargoes and increasing freight costs for coal deliveries into Germany. However, utilities report holding ample coal stocks and retaining alternative transport options, limiting the immediate impact on power generation.
• France experienced significant heat-related nuclear curtailments during the month, with as much as 9.2 GW, or 14.5% of installed nuclear capacity, unavailable at one point as low river levels and elevated river temperatures forced output reductions across several reactors, tightening the regional power balance and providing further support to European short-term gas and power prices.
• Winter 26 baseload power prices rose sharply in July, trading within a wide £31/MWh range and ending 25.8% higher, supported by strength in short-term power markets and firmer gas and carbon prices amid ongoing geopolitical tensions in the Middle East.
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