Energy Markets Strengthen as Middle East Tensions Escalate

Market Update:

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• The U.S. military carried out a third consecutive night of strikes against Iran on Monday as President Trump reinstated a blockade of Iranian shipping and proposed charging a 20% fee to guard the Strait of Hormuz.
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• The Islamic Revolutionary Guard Corps (IRGC) said two "offending" supertankers had been hit and disabled in the strait after ignoring repeated warnings and turning off navigation systems, Iranian media reported.
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• It accused the U.S. of "inciting vessels to use an illegal route" and warned that cooperation with the "aggressor enemy" would result in damage, delays in reopening the waterway and a global energy crisis.
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• Oil prices rose nearly 3% on Tuesday to their highest in four weeks, as the U.S. reimposed its naval blockade of Iran while the two countries stepped up attacks in the Strait of Hormuz, heightening uncertainty about energy flows.

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NATURAL GAS:
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In the UK, this morning the NBP front-month contract is currently trading at 127.75p/th at time of writing, trading sideways with yesterday’s closing NBP front month price of 127.50p/th. Despite sideways movement overnight, prices are still trending upwards with an over 7p/th gain seen during yesterday’s trading session. This continues the bullish movement we have seen from the market over the past few trading sessions.
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The dominant driver remains the escalating conflict in the Middle East. Overnight, market sentiment strengthened further following reports of renewed attacks on commercial vessels, while President Trump announced that the blockade would be reinstated, increasing concerns over the security of global energy trade routes. Attention remains firmly on the Strait of Hormuz, where LNG shipping activity has slowed considerably in recent days. This increased security risk and reduced vessel movements have heightened fears of tighter global LNG supply, leaving a significant geopolitical risk premium in European gas prices.
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Supply fundamentals continue to add support. The ongoing maintenance outage at the Freeport LNG export facility in the United States has reduced LNG export capacity, tightening the global supply balance and increasing competition for available cargoes during Europe's critical storage refill period. Meanwhile, Norwegian supply remains under pressure after process issues at the Asgard field reduced output by around 11 million cubic metres per day. The unexpected decline in flows has reinforced the market's sensitivity to any unplanned supply disruption.
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European storage remains another key area of focus. While injections continue steadily, inventories remain below seasonal levels, meaning traders are continuing to monitor refill progress closely. With winter preparations well underway, any additional disruption to supply or slowdown in storage injections is likely to provide further support to prices.
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Overall, the gas market remains firmly bullish, with geopolitical uncertainty, constrained LNG supply, weaker Norwegian flows and ongoing storage concerns continuing to add bullish sentiment to the market.

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ELECTRICITY:
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In the European power market, forward contracts have strengthened further overnight, supported by higher gas prices, continued supply constraints and seasonal demand. Gas remains the key pricing driver across Europe. With gas-fired generation continuing to set the marginal price in many markets, the latest gains in TTF have translated directly into higher thermal generation costs, providing additional support to wholesale electricity prices.

Weather conditions also remain supportive. Above-average temperatures across much of Europe continue to sustain higher electricity demand through increased cooling requirements. Although wind generation is expected to improve later in the week, renewable output remains inconsistent, meaning conventional thermal generation continues to play an important role in balancing the system.

French nuclear generation has also come under pressure as elevated river temperatures have forced output reductions at several nuclear reactors. Warmer river water limits the effectiveness of reactor cooling systems, with environmental regulations restricting the temperature of water discharged back into rivers. The resulting loss of baseload nuclear capacity has tightened generation margins across Europe, increasing reliance on thermal generation and providing additional bullish support to forward power prices.

Overall, the European power market remains moving in a strong bullish direction. Stronger gas prices, warm weather, nuclear outages and ongoing geopolitical uncertainty continue to provide a supportive backdrop helping to support gains in the power market.

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