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Geopolitics Keeps Energy Markets on Edge

  • 9 hours ago
  • 5 min read

UK Energy Market Update


February 2026


Market Summary

 

EU gas storage continued to fall in February, dropping from around 41% to near 30% by month-end, well below the five-year average. Early cold drove heavy withdrawals across Northern and Western Europe, with Germany, France and the Netherlands particularly affected, reaching some of the lowest seasonal levels since 2022. Milder forecasts later slowed drawdowns, slightly stabilising inventories, but levels remained historically low, leaving limited buffers for late-winter demand and increasing pressure on summer refilling.

 

Geopolitical tensions between the United States and Iran were a recurring source of volatility throughout February, repeatedly injecting and then removing risk premium from energy markets. Early in the month, reports of diplomatic engagement and progress in nuclear negotiations eased concerns over disruption to shipping through the Strait of Hormuz, weighing on oil and gas prices and feeding through to softer UK gas and electricity markets. This was punctuated by episodes of renewed military signalling, naval deployments and Iranian drills near key shipping lanes, which periodically lifted prices as traders reassessed the risk to LNG and oil flows into Europe. By late February, negotiations had stalled without a clear breakthrough, keeping markets highly sensitive to headlines and maintaining an underlying geopolitical premium. The conflict that erupted on 28 February marked a decisive escalation, with the subsequent rise in UK gas and power prices proving significant as risk premia surged into early March.

 

Peace talks between Ukraine and Russia continued through February under US mediation, with meetings in Abu Dhabi and Geneva. Despite some constructive discussions, negotiations stalled over territory and the Zaporizhzhia nuclear plant, amid ongoing strikes. Kyiv backed US-led initiatives but sought firm security guarantees, while Moscow pressed for territorial concessions. By month-end, no breakthrough had been reached, keeping markets cautious and a durable ceasefire uncertain.

 

A ruling by the US Supreme Court limiting President Donald Trump’s tariff powers prompted him to announce a temporary 15% global levy under alternative trade laws, reviving uncertainty over future trade and energy flows. While the immediate impact on European markets was muted, analysts warned that prolonged tariff instability could disrupt LNG trade and raise the risk of US supply being used as leverage against the EU. For the UK, this adds another layer of uncertainty to gas and electricity pricing by potentially tightening LNG availability and sustaining a geopolitical risk premium.

 

A pioneering hydropower system in Devon is now operational, generating electricity using gentle slopes rather than steep drops, thanks to a dense mineral-rich fluid that allows compact, efficient energy production. Embedded underground, the system can both generate and store electricity, acting like a battery to release power during peak demand. This innovative approach offers a faster, cheaper alternative to traditional hydropower and could play a key role in balancing renewable-heavy grids across the UK and beyond. 

 

Net Zero News

 

Wind generation across England, Scotland and Wales reached a record 10.6 TWh in January 2026, driven mainly by exceptionally stormy conditions.

 

The British Property Federation is urging the government to urgently clarify future minimum energy efficiency standards (MEES), warning that over 80% of commercial buildings in England currently hold EPC ratings below ‘B’.

 

The European Union is finding it difficult to secure enough critical raw materials to meet its energy and climate ambitions, with existing policies unlikely to deliver in time for its 2030 targets.

 

The Government has announced up to £1 billion in public funding to support community-owned renewable energy and energy storage projects across the UK.

 

The UK Government has confirmed the results of the seventh Contracts for Difference (CfD) auction, awarding contracts for a record 4.9 GW of solar capacity, alongside onshore wind and tidal projects.

 

A £34 bn investment in the UK’s electricity grid over the next 15 years could generate £194 bn for the broader economy and support tens of thousands of jobs if maintained through 2040.

 

Global electricity demand is projected to soar through 2030, placing unprecedented pressure on grids and widening the gap between generation plans and network capacity.

 

Nearly two-thirds of projects set to connect to Britain’s energy grid by 2027, including renewable generation schemes, face potential delays, though Ofgem will continue to press for timely progress.

 

EDF has confirmed plans to invest a further £15 billion in the UK between 2026 and 2028, following more than £5 billion of net investment in 2025.

 

National Gas has joined Centrica, Equinor and SSE Thermal in a coordinated effort to develop Britain’s first integrated hydrogen transport and storage network in the Humber Estuary.

 

Europe installed 19.1GW of new wind capacity in 2025, taking total capacity to 304GW and making wind responsible for roughly a fifth of electricity demand across the continent, including the UK.


Electricity & Gas Prices

 

UK wholesale gas and electricity prices eased over February after the strong gains in January. Milder weather, lower seasonal demand, and steady LNG and Norwegian supply flows helped relieve short-term tightness, while falling carbon prices added downward pressure on power. Intermittent geopolitical tensions and ongoing concerns over low European gas storage kept markets cautious, and brief spikes in risk sentiment occasionally supported prices. Overall, the month was characterised by a softer trend, with markets balancing improved supply conditions against lingering structural and geopolitical uncertainties.




Oil Market



In February 2026, Brent crude prices averaged around the high-$60s per barrel, fluctuating sharply over the month as shifting geopolitical headlines drove repeated swings in risk sentiment.

 

Prices weakened early in the month as easing tensions between the US and Iran reduced fears of near-term supply disruption, prompting a sharp sell-off that saw Brent retreat toward the mid-$60s/bbl. Reports of progress in diplomatic talks, alongside expectations of rising supply from Kazakhstan and the prospect of higher OPEC+ output, reinforced the view that the market was moving back toward surplus conditions, compressing the geopolitical risk premium embedded in prices.

 

Mid-month, prices rebounded as tensions resurfaced, with renewed US military signalling in the Middle East and warnings over the pace of negotiations lifting Brent briefly to six-month highs above $70/bbl. Support also came from tighter US inventory data and the strategic importance of the Strait of Hormuz, which kept markets sensitive to any signs of escalation.

 

However, gains proved difficult to sustain as subsequent diplomatic developments again eased immediate disruption risks. By month-end, crude remained rangebound, with competing forces of geopolitical uncertainty and rising supply expectations leaving prices volatile but broadly anchored around their monthly average.

 

Carbon Prices



In February 2026, EUA carbon prices averaged approximately €77 per tonne, down sharply from January’s average of around €89/tonne.

 

The decline was driven by a heavy sell-off early in the month as expectations of linking the EU and UK carbon markets faded, while speculative funds unwound long positions following January’s multi-year highs. Sentiment deteriorated further after political signals from several EU member states suggested a possible softening of EU ETS rules to protect industrial competitiveness, with reports that emissions-reduction targets and supply constraints could be relaxed. These developments pushed prices to intra-month lows near €70/tonne, the weakest levels since mid-2025.

 

However, prices stabilised and staged a modest rebound in the second half of the month as selling pressure eased and short covering emerged. Despite this late recovery, persistent policy uncertainty and concerns over weaker structural demand kept the market under pressure, leaving February characterised by a pronounced downward trend and a much lower monthly average compared with January.


Get in Touch

 

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Our complete energy management service also includes helping businesses to identify potential savings through energy audits, tax levy rebates and grant funding. We can also help you plan for Net Zero and achieve compliance with our in-house ESOS assessment service.


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