UK gas and power prices were buffeted by conflicting news from the Middle East this week, with the front month gas contract striking 3-week highs and 2-week lows on consecutive days.
On Sunday 3rd May, US President Donald Trump announced ‘Project Freedom,’ a humanitarian gesture which he said was “meant to free up people, companies, and Countries that have done absolutely nothing wrong,” whereby US forces would provide military escort to merchant vessels trying to exit the Strait of Hormuz. Over the following day, seven Iranian ships were sunk, while Iran launched fresh attacks on the United Arab Emirates and on ships in the Strait. Renewal of hostilities saw the front month gas contract hit a 3-week high on Tuesday’s open, before Trump announced the project would be temporarily halted.
On Wednesday 6th May, reports emerged that the US and Iran were closing on agreement of a one-page memorandum of understanding to end the war, and setting a framework for more detailed nuclear negotiations. Shortly afterwards, a statement from Iran’s IRGC thanked captains and shipowners for “complying with Iran’s Strait of Hormuz regulations,” and announced that “with aggressor’s threats neutralized & new protocols in place, safe, stable passage through SOH will be ensured.” UK gas and power prices fell by up to 13% within-day following the news, before rebounding slightly in the afternoon.
Following successful passage of Mubaraz, a Liberian-flagged LNG tanker, further laden LNG tankers appear to have transited the Strait. Mraweh, chartered by ADNOC Gas, switched off its AIS signal on 19th April while located within the Persian Gulf, and has since signalled its location as being near Indonesia. Further vessels Al Hamra, Umm Al Ashtan and Marigold have also shown similar AIS disconnection patterns and may follow a similar route.
Hedge funds increased their net long positions in the European gas market as per the latest commitment of traders report. With little change in short position, funds added another 26TWh of longs, bringing total net long position to 288TWh. Activation of stop-losses by funds going long may have contributed to the strong bearish movement on the morning of 6th May.
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