Market Insight Report Energy prices drop on prospects of ceasefire and economic downturn
May 2025
Wholesale energy markets over the first quarter of 2025 saw relative price stability in January, followed by a brief spike in February, in response to a cold temperature forecast, followed by a series of price decreases. These price decreases have been driven by three primary factors.
Prospects of war end weigh on energy prices
Firstly, although President Donald Trump had been unable to deliver in his promise to end the war in one day 1 the President of the United States engaged in peace talks with Putin, and put Ukraine under pressure to negotiate by pausing aid 2, the increased prospect of peace has put downward pressure on prices, as Russia may increase its gas flows into Europe to pre-war levels.
Market adjusts to changing EU gas storage targets
Secondly, in response to the energy crisis precipitated by the conflict in Ukraine the European Union implemented gas storage targets to ensure Europe was adequately supplied with gas each winter. The targets, however, caused price distortions, in response to this the EU are set to relax the gas storage requirements 3 this too has eased UK gas and electricity wholesale markets.
US tariffs and global energy prices
Lastly, the United States at the beginning of Q2-2025, imposed tariffs on imports across much of globe, exacerbating a trade war with China, and increasing the cost of international trade with the United States, the impact of this had set to reduce the long-term global demand for goods and commodities, further dampening prices of gas and electricity in the UK. But this may change as the US continues to negotiate trade deals and agree pauses on tariffs. Potentially introducing more price variability as we enter the summer.
UK wholesale gas prices (left) and electricity prices (right)
Over the quarter we saw more seasonal volatility in gas than electricity. Gas and electricity prices respectively rose by 14% 4 and 16% 5 up to their peak in mid-February, then by the time of writing fell by 27% 4 and 21% 5.
In this article
- Prospects of war end weigh on energy prices
- Market adjusts to changing EU gas storage targets
- US tariffs and global energy prices
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Sources
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