Feb26 Energy Market BriefFeb26 Energy Market Brief: Markets React To Weather Patterns

January opened with a renewed sense of optimism in the UK energy markets as hopes of sustained lower wholesale prices carried over from late 2025.

Early in the month, many forward contracts signalled softer pricing as forecasts suggested milder conditions ahead and ample LNG availability.

However, this optimism was tested as the New Year progressed and fundamental drivers began to assert themselves more sharply.

The most defining feature of the month was heightened volatility in wholesale gas markets, driven by a combination of persistent cold spells across Europe and supply-side sensitivities.

Gas prices, which had earlier eased following abundant LNG expectations, climbed significantly mid-January as colder-than-expected weather increased heating demand and lowered storage inventories.

Although storage remained a critical support for prices, inventories across the UK and EU stayed well below average seasonal levels, leaving the market exposed to weather risks and short-term flow disruptions.

Wholesale gas at the UK National Balancing Point notably rose during the month, with near-term contracts trading up as winter demand peaked.

These gains were mirrored in the power market, with day-ahead electricity contracts rising sharply at certain points as gas-for-power demand increased and nuclear outages tightened supply.

Despite upward pressures on prompt power prices, renewable generation played an increasingly influential role in curbing some of that upward momentum.
January saw UK wind output running at multi-year highs, with output averaging higher than at almost any point over the past few winters.

Strong wind conditions helped temper spot power pricing as fundamentals tied to gas volatility continued to dominate the narrative.

Internationally, broader energy market themes continued to influence sentiment within the UK.

A backdrop of swelling oil and gas inventories in some regions contrasted with the structural tightness seen in European gas, and ongoing geopolitical uncertainty remained a recurring feature in commodity outlooks.

Looking ahead, the market narrative at the close of January suggests that volatility rather than clear directional trends is likely to define the early part of 2026.

A combination of weather-driven demand pressures, reliance on LNG flows into Europe, and the evolving mix of renewable and thermal generation will continue to shape price discovery across both gas and power markets.

The sensitivity of prompt contracts to short-term fundamentals highlights the importance of active risk management as we transition into Q2 pricing and beyond.