UK gas contracts for delivery during October, Q4 26 and Winter 26 struck fresh four-year highs on the morning of 2nd September, trading at 182p/th, 186p/th and 185p/th respectively, a 3% gain against the previous close and a 140% increase on the closing price before the first strikes on Iran at the end of February. The move was seeded on Tuesday 1st September, when gas gained 7-8% along the curve as far out as Winter 27, with power counterparts up 6-7% over the same periods. Even Summer 29 gas – which has enjoyed some insulation from near-term bullishness over the course of the war – gained 4.3%, its largest one-day move since June 2023. Europe’s key benchmark, the TTF, closed back above €70/MWh on Monday and reached €72/MWh on Tuesday, while Brent crude touched a six-week high of $97/bbl before easing to just below $95/bbl.
The catalyst was a return to direct exchanges of fire, the first since late July. Over the bank holiday weekend, US forces struck two rocket launchers on Larak Island, within the Strait of Hormuz just offshore from the port of Bandar Abbas. US Central Command said it had taken “limited, precise action” having observed Iran preparing to “launch rockets and deploy sea mines into the Strait of Hormuz.” Iran responded by striking US military bases in Jordan, with Jordan’s army claiming to have intercepted eight missiles, while Iranian state television claimed a drone attack on an air base in the United Arab Emirates, a claim the UAE described as “unfounded.” US President Donald Trump promised that “we’re going to hit them hard… there will be a response,” but Iran struck the Jordanian bases again on Wednesday. Iran’s supreme leader Mojtaba Khamenei said the country’s armed forces had “unforgettable lessons” ready for America, and the IRGC claimed two oil tankers had struck sea mines and been disabled attempting to transit the Strait, warning of “double punishments” for shipping companies that “fall for the deception of the United States.”
Bearish sentiment had characterised the first half of the period under review, on the back of the most concrete diplomatic movement seen on the Strait since the war began. Oman and Iran announced a proposed framework on Tuesday 25th August to resume safe navigation, including a joint temporary shipping lane and a project to demine the waterway. Qatar’s foreign minister met his Iranian counterpart in Tehran on 27th August to discuss the same corridor, and Mohsen Rezaei, Secretary of Iran’s Supreme National Security Council, confirmed Tehran was drawing up a list of conditions for reopening the Strait at mediators’ request. Reporting from Axios also indicated US Secretary of State Marco Rubio had told allied foreign ministers that the US was not expected to launch new strikes “for time being.” Gas duly opened 3% lower on 26th August. However, the conditions attached by Tehran – an end to the US blockade of Iranian ports, compensation and the removal of sanctions – remain those Washington has consistently rejected, and White House Press Secretary Karoline Leavitt confirmed on 28th August that “no negotiations are happening right now.” Mr Trump told Al Jazeera he was “not in a hurry” and had “no time schedule, none,” as the war approaches the six-month mark.
Washington has meanwhile intensified an explicitly economic campaign, with two further Treasury designations issued on 28th August and Treasury Secretary Scott Bessent telling G20 finance ministers on 1st September that Iran’s economy could collapse “within weeks or months.” Tehran’s answer has been to deepen its alignment eastwards, with President Masoud Pezeshkian meeting Vladimir Putin at the Shanghai Cooperation Organisation summit in Bishkek, the first in-person meeting of the Iranian, Chinese and Russian leaders since the outbreak of hostilities.
Conditions on the water bear little resemblance to the official account of them. Mr Trump claimed this week that the Strait was in “extremely good shape,” that “many, many ships got through last night… with the navy’s assistance,” and that transits had been “averaging 30 ships a night.” Vessel tracking data from Windward covering 23rd to 30th August indicates an average of six inbound and five outbound transits per day, against 130-140 daily crossings before the war, and the UKMTO reported a tanker struck by an unknown projectile in the Strait on 27th August. A distinction between crude and LNG is worth drawing here, in that ship-to-ship transfer – whereby a vessel collects cargo inside the Gulf and shuttles it to another waiting outside the Strait – has become commonplace in the oil market but not in gas. Reuters reporting indicates just three LNG cargoes have been transferred ship-to-ship outside the Gulf since the war began, all within the last fortnight, against more than 280 such transfers of crude. Gas and power price movement therefore correlates only weakly with crude in the current environment.
European gas storage fullness climbed from 63.28% on 26th August to 65.39% as of the latest AGSI data, but 30th August marked the lowest fullness percentage on record relative to time of year. Aggregate fullness is 12 percentage points down year-on-year and just under 17 points below the five-year average, with the major North West European markets weaker still; Germany sits at 53.28% and the Netherlands at 47.29%. Applying the range of refill rates recorded over the last twelve years produces a spread of 67.6% to 74.3% fullness at the start of winter, with virtually every scenario matching the lowest pre-winter fullness level on record. Norwegian supply offers no relief in the near term, with flows at 285.4mcm/d and the pre-winter maintenance regime weighing on exports for much of September; planned outages at Nyhamna, Ormen Lange, Sleipner, Troll, Kollsnes and Gullfaks have cut flows to the UK via Langeled to just 18mcm/d as of Wednesday.
Investment funds cut their net long position on the TTF by 34TWh in the latest Commitment of Traders report, taking net length down to 219.4TWh from 253.4TWh the week before. This is the largest weekly reduction since late June, and notable for having been made into a rising market; the TTF front month is marked at €74.48 for the week, against €65.76 the week previous and the highest weekly level of the war to date. The composition of that cut is instructive, with gross longs falling by 42TWh to 368.7TWh while gross shorts came down only 8TWh to 149.2TWh, indicating funds banking profits on the rally rather than positioning for a reversal. Even after the reduction, net length remains well above anything seen before the war; the pre-war peak for 2026 was 124.8TWh.
The one clearly constructive domestic development is wind, where surging output has taken 23% out of the day-ahead power price for Thursday, with generation expected to remain strong across the coming week.
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