Energy market update

May saw a reversal of recent market trends, with gas and power prices rising following a three-month period of consecutive net losses. A combination of escalating geopolitical tensions and Norwegian supply disruptions, amongst other drivers, pressured gas and power prices up from the seven-month low at the end of April.

Tariff Impacts

May began on a positive economic note, with the UK securing its first trade deal with the US since the onset of Trump’s trade war. The agreement, announced on May 8^th, reduced tariffs on key exports such as cars and steel. However, a flat 10% duty on most goods remains. The deal is limited in scope and still leaves the UK facing tougher trade terms than the pre-tariff global environment. By mid-month, a temporary truce between the U.S. and China marked a significant de-escalation. The US agreed to lower tariffs on Chinese imports from 145% to 30%, while China cut its tariffs from 125% to 10%. Both countries agreed to suspend select tariffs for 90 days to allow space for renewed negotiations. The truce provided some market optimism, supporting modest gains across financial and energy markets.

However, the impacts of the tariffs introduced in April are still very much being felt despite the cooling tensions. In China, factory output growth slowed by 5.8% last month – a six-month low – despite a surprising 6.4% rise in retail sales. Additionally, exports to the US dropped sharply by 34.5%, underscoring the ongoing strain on trade. Over in the US, inflationary pressures edged up, with annualized CPI rising to 2.4% in May from 2.3% in April. While still an increase, the rise was softer than many had expected amid widespread uncertainty surrounding the US economic outlook. Despite early signs of resilience, recent indicators point to cooling momentum in the US economy. US manufacturing sentiment fell for the third consecutive month, reaching its lowest level in six months – further raising doubts over the effectiveness of tariffs in boosting domestic production.

For a moment in late May, it seemed the tariff war might be winding down. On May 28^th the US Court of International Trade declared that President Trump’s sweeping use of The International Emergency Economic Powers Act to impose tariffs was unconstitutional, blocking their enforcement. However, the very next day, the Federal Circuit Court of Appeals put that decision on hold. A follow-up order confirmed that the stay would remain in effect as the case moves forward, with oral arguments now scheduled for July 31^st this year, reflecting the high stakes involved. This remains a key area of the market to watch, as any indication of the economy improving or worsening can have a significant impact on future gas and power prices.

Russia-Ukraine War

Mid-May saw a brief dip in prices following news of potential peace talks between Russia and Ukraine. While Russia initially signalled openness to negotiations, it was later confirmed that Putin would not attend personally, opting instead to send delegates. As a result, the talks were delayed and ultimately unsuccessful. Diplomatic efforts resumed shortly after with a two-hour call between Trump and Putin. However, following the call, Trump reported that the conditions of a peace deal could only be negotiated between Russia and Ukraine. Even in the event of a breakthrough, any resulting shift in energy supply to Europe appears unlikely. The European Commission has proposed banning new Russian gas import contracts and spot deals by the end of 2025, with a full prohibition on Russian gas imports planned by the end of 2027.

Norwegian Maintenance

The Norwegian continental shelf underwent a period of maintenance in May – most of which was planned – although several unplanned outages and extensions also occurred. This brought production down to its lowest level since last September, another period marked by heavy maintenance, leading to a reduction in gas exports to the UK. The UK continental shelf faced similar issues, with outages disrupting flows and contributing to a noticeable slowdown in storage injections mid-month. By the end of May, aggregated storage levels across Northwestern Europe stood at 43% capacity – 25% lower than the same point in 2024. These relatively low storage levels are a key driver behind the bullish price movement, particularly for Winter-25 contracts, which underwent a 6% month-on-month increase in May, as this is the season when gas reserves will be drawn upon.

Summary

Overall, supply-side concerns – particularly in anticipation of the upcoming winter – were the dominant market driver last month, overshadowing the bearish effects of continued economic fallout from Trump’s tariffs and resulting demand destruction. Though there was some softening in Trump’s rhetoric during May, the global economic outlook remains fragile, and its toll on energy demand is becoming increasingly evident. Looking ahead to June, geopolitics and economics will continue to be key areas of the market to watch, particularly with the bulk of planned maintenance due to be completed.

Monthly price change
(29^th April vs 30^th May):​

Weather update

May was a particularly successful month for wind generation in Great Britain, providing 26.7% of our electricity on average throughout the month. Zero carbon sources more broadly accounted for 57% of electricity, peaking at 86% at 9am on May 29^th. Looking ahead to June, wind is set to perform mostly in line with the seasonal average from mid-month onward. Solar on the other hand is set to be strong, coming in above seasonal average for the most part – pressuring prices down during the middle of the day. Touching on temperatures, the start of the month saw cold and stormy conditions, with very heavy precipitation. However, from June 10^th, conditions are forecast consistently above the 30-year average, peaking at 4°C above average on June 21^st. Similar conditions are forecast across much of Europe, meaning we could see bullish pressure from elevated cooling demand and potential disruptions to nuclear supply.