Fri, 21st Aug ’26

GAS

• Without seeking congressional approval, Trump’s Administration assassinated Iran’s leader, and launched a general offensive against Iran back on 28th Feb.
• Thereafter, Trump’s Administration has twice agreed ceasefires with Tehran (8th April and 12th June) with a view to walking away from a stalemate.
• Not surprisingly, on both occasions, markets dropped significantly and investment funds offloaded their long positions in preparation for the re-opening of the Strait of Hormuz (and the associated resumption of LNG exports from the Gulf to destinations throughout Asia).
• Unfortunately, on both occasions, hostilities resumed despite the best efforts of diplomacy and mediation (primarily on the part of Pakistan).
• Analysts’ consensus throughout the conflict has been an expectation that Trump would eventually be forced to relent in the face of domestic/global pressure, rising inflation, falling approval ratings, and the impending mid-terms.
• Instead, he appears to be doubling-down, consequences be damned.
• Despite polls pointing toward the Republicans losing the lower house, and challenging for the upper house come November, Trump has opted to ramp-up economic warfare against Iran, threatening Iran’s trade partners with sanctions if they continue to do business with Tehran.
• To clarify, Iran’s primary trade partners are China, UAE, Turkiye, Iraq, Oman, Pakistan, India and Armenia.
• As you’d expect, the expansion of the conflict’s impacts to include so many large economies has proven very price supportive over the last couple of days.
• And so, market participants and energy consumers across the globe are staring down the barrel of higher prices – indefinitely.
• The Strait will remain at a trickle over the coming months, and the global macroeconomic outlook will worsen – inflation will rise, interest rates will need to rise to keep a lid on overheating economies, yields will rise in the face of a global bond sell off (making it more expensive for countries to borrow money), and global economic growth forecasts will be downgraded.
• Unless, of course, an agreement can be reached at the 11th hour.
• Energy buyers have spent the summer buying near-term delivery in the dips, and hedging further down the curve where prices remain good value.
• However, many consumers remain exposed for Winter-26 delivery, which is at nearly 100% premium versus 27th Feb (the day before Trump’s war began) – Winter-26 delivery closed at 80 p/therm on 27th Feb, yesterday closed at 158 p/therm.
• The loss of LNG exports through the Strait has inevitably meant that Europe and Asia are competing for the other 80% of global LNG flows – Asia needs to gas to power cooling demand, Europe needs gas to inject into storage for heating season come November.
• European gas fullness is at 61% versus the 8-year average of 78% – but has now notably fallen out of the 8-year range to the downside giving rise to fears of gas shortages in the event Europe has a cold winter – please see chart below.
• Looking forward, for clients with Winter-26 open volumes,  we fear the chance to secure pre-war value has all but closed.
• Whilst we’ll of course look to advise on potential intraday dips and hedging opportunities over the coming days/weeks, we think it unlikely that any will materialise.
• Monthly Day-Ahead Averages for August so far are at 146p/therm (or 5p/kwh exc. non-gas) – the highest level we’ve seen since Jan ’23.

ELECTRICITY & CARBON

• Seasonal Forwards are up versus 1-week, 1-month 3-months, and 6-month ago – please see chart below.
• Today’s UK electricity generation mix has been bearish in nature due to strong renewables outputs (not that it’s having any bearish effect given the overwhelming impact of looming global gas shortages) – specifically, renewables are contributing 43%, thermal at 13% (gas and coal) and low carbon at 30% (nuclear and imports).
• On the Carbon side of things, mid-price Dec-26 UKA delivery sits at at £59.49/tn (and the spot is at early 58s) – price action has become directionless amid surges in near-term gas delivery prices (and impending industrial demand destruction).
• Looking forward, for clients with Winter-26 open volumes,  we fear the chance to secure pre-war value has all but closed.
• Whilst we’ll of course look to advise on potential intraday dips and hedging opportunities over the coming days/weeks, we think it unlikely that any will materialise.
• UK electricity Monthly Day-Ahead Averages for August so far are also at £119.1/mwh (or 11.91p/kwh exc. non-energy).