Markets Firm as Risks Persist
- Jun 9
- 5 min read
UK Energy Market Update
May 2026
Market Summary
EU gas storage continued its seasonal refill through May, rising from around 33.5% at the end of April to approximately 40.5% by month end as injections progressed steadily across the continent. This increase reflected ongoing summer replenishment activity and relatively moderate demand, allowing storage levels to build on a consistent day to day basis. Despite this progress, inventories remained well below the five-year seasonal average of around 54% for this point in the year, highlighting the deficit created by heavier winter withdrawals. The gap to historical norms continues to raise concerns over the pace of injections heading into the summer months, particularly given the need for sustained strong inflows to ensure adequate storage coverage ahead of Winter 2026 amid persistent geopolitical risk and competition for global LNG supply.
Middle East tensions remained a dominant driver of global energy markets throughout May, with disruption across the Strait of Hormuz persisting despite a fragile and intermittently observed ceasefire. Shipping activity through the region remained constrained, with LNG and oil flows continuing under heightened security, elevated insurance costs and periodic rerouting. Although limited volumes resumed later in the month, transit conditions remained unstable, maintaining pressure on global gas supply and reinforcing competition for available LNG cargoes. For UK energy markets, this disruption continued to support wholesale gas and power prices, particularly along the prompt and Winter 2026 curves, as traders priced in sustained uncertainty around LNG availability and global supply risk.
The UK government used the King’s Speech in mid-May to set out a stronger policy focus on energy security and domestic supply, centred on the proposed Energy Independence Bill. The legislation is expected to accelerate renewable deployment, expand grid infrastructure and reduce long term exposure to volatile global gas markets. While the measures are unlikely to impact pricing in the near term, they are widely viewed as a structural shift towards greater system resilience and reduced import dependency.
Norwegian supply showed early signs of tightening ahead of the summer maintenance period, with production falling for a fourth consecutive month into April. This raised renewed concern over the stability of pipeline flows into Northwest Europe at a critical point in the refill season, particularly given the UK’s continued reliance on Norwegian imports.
Declining UK Continental Shelf production remains a key structural theme, increasing reliance on imported gas. This shift continues to expose the UK more directly to global LNG dynamics and external geopolitical risks, reinforcing the link between international events and domestic pricing.
Energy security remained a central theme throughout May, with both UK and European policymakers increasingly framing energy supply within a broader geopolitical and economic security context. This reflects sustained volatility in global markets and reinforces the shift away from cost led optimisation towards resilience led energy strategy.
Net Zero News
Small manufacturers across the UK are maintaining a strong focus on sustainability in 2026, even as they face inflationary pressures, rising energy costs and persistent supply chain disruption, according to new research from Novuna Business Finance.
Think tank Green Alliance estimates that the volume of waste gas that energy operators lose through flaring and venting would provide enough power to heat 570,000 homes.
Labour set out plans in the King’s Speech to place energy independence at the heart of its economic strategy, introducing a major new Bill aimed at lowering household costs, accelerating the transition to clean power and reducing the UK’s exposure to global fossil fuel volatility.
Britain’s electricity grid could be left dangerously exposed to climate shocks unless Ofgem strengthens its next round of network regulation. The report warns that the regulator’s forthcoming RIIO ED3 framework still falls short of pushing network operators to prepare for increasingly severe weather, ageing infrastructure and rising electricity demand from EVs and heat pumps.
The crisis in Iran and disruption in the Strait of Hormuz should serve as a wakeup call for governments that remain heavily dependent on fossil fuels, according to a major new report from the Energy Transitions Commission.
Nearly three quarters of UK and Irish businesses are putting off major energy decisions as they wait for greater certainty, according to new research from Centrica Business Solutions. The Power Paradox report, based on a survey of 500 organisations across the UK and Ireland, highlights how businesses are struggling to balance decarbonisation goals with rising costs, resilience pressures and increasing market uncertainty.
Green groups have welcomed Chancellor Rachel Reeves’ move to close tax loopholes on oil and gas company profits, but say further action is needed to better protect the public from energy price volatility.
Britain’s electricity grid came close to operating without fossil fuels for the first time in April 2026, with new analysis from Drax Electric Insights showing generation from fossil fuels fell below 1 GW for the first time on record.
Electricity & Gas Prices
UK wholesale gas and electricity prices showed a broadly firm trend through May, with upward pressure across prompt and near-term markets. Prices were supported by ongoing Middle East disruption, tighter LNG supply and continued concerns around European storage levels. Power markets strengthened more noticeably, driven by higher gas input costs and firm carbon pricing.
Some downside pressure emerged at times from milder weather, improving storage injections and stronger renewable generation, which helped limit gains. Overall, May was characterised by a stable but slightly bullish market, as geopolitical and structural risks continued to outweigh softer short-term fundamentals.
Oil Market
Brent crude prices remained highly volatile through May but trended lower overall, easing from the elevated levels seen in April as immediate supply fear began to soften. Early in the month, prices continued to find support from the ongoing Middle East conflict, with the effective closure of the Strait of Hormuz and the loss of a significant portion of global oil supply maintaining tight market conditions and a strong geopolitical risk premium. Disruptions to production across key Gulf exporters and reduced spare capacity also reinforced short term supply concerns and limited downside potential.
As May progressed, however, bearish drivers became more prominent. Markets increasingly priced in weaker global demand, with forecasts revised lower amid softer economic conditions and signs of demand destruction, particularly across OECD economies. Expectations that shipping flows would gradually resume and that alternative supply sources would continue to offset lost Middle Eastern output also helped ease concerns over prolonged disruption.
Overall, May was characterised by a softening but still elevated oil market, as easing short term supply fears and a weaker demand outlook began to outweigh ongoing geopolitical risk, although prices remained highly sensitive to developments in the Middle East and continued supply uncertainty.
Carbon Prices
EUA carbon prices strengthened through May, with the monthly average rising to around €77–78 per tonne compared with approximately €74 per tonne in April, reflecting a firmer overall trend across the month. Prices were supported by sustained strength in gas and power markets, which maintained fuel switching incentives, alongside continued geopolitical risk that reinforced broader energy market sentiment.
As the month progressed, additional support came from positioning ahead of key EU ETS policy signals, including late May updates to allowance surplus data, which contributed to expectations of tighter market conditions. However, bearish pressure persisted at times, driven by softer industrial demand across parts of Europe and intermittent pullback in gas prices, which reduced compliance buying urgency and prompted periods of profit-taking.
Overall, May was characterised by a stronger upward trend compared with April, with carbon markets gaining support from energy price dynamics and policy expectations, while remaining sensitive to fluctuations in industrial activity and wider macroeconomic sentiment.
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