Short-term gas prices weakened this week, with the UK day-ahead gas contract down around 10p week-on-week as heatwave conditions suppressed heating demand, while stronger Norwegian exports boosted supply. Spot power markets nevertheless remained firm despite strong solar generation and negative intraday pricing hours across parts of Continental Europe, supported by elevated cooling demand and intermittent wind output, with UK day-ahead baseload averaging £105.58/MWh and Germany €96.42/MWh. Across the curve, prices eased on reports of a potential US–Iran ceasefire extension framework, though no agreement has been confirmed. Ongoing strikes and uncertainty underscore the fragility of the situation, keeping geopolitical risk elevated and volatility high.
Economic Environment
• UK job vacancies fell to a five-year low in April as employers continued to cut headcount, underscoring growing economic strain. The unemployment rate edged up to 5% in the three months to March, signalling further softening in the labour market amid broader geopolitical uncertainty.
• Against this backdrop, UK retailers continued to report weak sales, with consumer demand remaining subdued amid elevated prices and uncertainty, although the pace of decline eased from the record contraction seen a month earlier.
• According to the British Retail Consortium, shop price inflation rose 1.2% year-on-year in May, driven by supply disruptions and higher energy costs linked to the conflict in the Middle East.
Oil
• Oil markets remained highly sensitive to developments in the Middle East throughout May, with prices supported by concerns over escalation, ongoing strikes, and disruption to flows through the Strait of Hormuz. This strength later reversed on reports of a potential agreement, which has yet to be confirmed. Brent crude traded within a $23.50 range over the month and ended around 17% lower.
• Global oil stockpiles have been depleting at an accelerated pace recently, with Goldman Sachs estimating that visible inventories have declined by 8.7 mb/d so far in May, nearly double the average drawdown rate observed since the conflict began.
• Cumulative supply losses from Middle East producers have already exceeded 1 billion barrels, while the IEA projects a second-quarter supply deficit of 6 million bpd.
Gas
• Analysts expect global LNG export capacity to rise by 33.1bcm in 2026. In the US, Golden Pass Train 1 (8.3bcm) shipped its first cargo in April, while Corpus Christi Stage 3 Trains 5–7 (7.3bcm) are due online this year. Conogan Marine XII FLNG (3.3bcm) shipped its first cargo in February, while LNG Canada Train 2 (9.8bcm) and Mexico’s Energia Costa Azul LNG (4.4bcm) are both expected to reach full capacity by mid-year.
• European gas storage levels have risen in the past two weeks, supported by unseasonably warm weather that reduced heating demand and, together with stronger solar generation, lowered gas-fired power demand, enabling higher injections. Although inventories remain low, storage is now 39.1% full, up from 32.7% a month earlier.
• The US LNG supply situation has added pressure to an already tight market lately, with planned maintenance at Cameron, Corpus Christi and Freeport. In addition, Golden Pass (which exported its second cargo on 9th May) has also entered what a spokesperson described as “normal start-up related maintenance”.
Power
• EU climate commissioner Wopke Hoekstra said the European Commission’s July review of the EU ETS will focus on “targeted improvements” while preserving stable long-term carbon price signals. Proposed changes include slowing the phase-out of free allowances for industry, integrating permanent carbon removals into the ETS, and adjusting the system’s annual emissions cap reduction rate (the Linear Reduction Factor) to permit emissions beyond 2040.
• Germany announced up to €5 billion in funding for 2026 to support decarbonisation in energy-intensive industries. The scheme, financed through carbon revenues from EU ETS auctions and national carbon pricing, will cover the cost gap between low-carbon and conventional production over a 15-year period.
• European carbon allowances have risen above €79/tonne, supported by renewed confidence ahead of upcoming EU ETS policy discussions rather than any immediate change in fundamentals. UK carbon prices have also extended gains, reaching a three-month high amid growing expectations of future linkage with the EU market following reports of a potential mid-July UK-EU summit, narrowing the discount to EU allowances.
• Spot power markets remained firm throughout May, supported initially by much colder-than-average temperatures across Europe and weak renewable generation during the first half of the month. Toward the end of May, heatwave conditions drove higher cooling demand, sustaining strong prices despite robust solar generation and periods of negative intraday pricing across parts of Continental Europe.
• The Winter 26 baseload power contract ended the month 4% higher amid gas volatility driven by Middle East tensions and firmer carbon prices, trading within a c. £11.7/MWh range.
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