July, 4 2025
In this episode, we take a look at the recent volatility of the energy markets and, in particular, the roller-coaster impact of geopolitical events in the Middle East. Market players are now refocusing on the fundamentals: the difficult injection season on the natural gas market, the impact of the heatwave on electricity markets and the singular movements in carbon prices.
European energy markets have experienced significant volatility in recent weeks, driven by geopolitical tensions in the Middle East before stabilizing as conflicts de-escalated. This comprehensive analysis examines the current state of gas, coal, carbon, and electricity markets across Europe.
The war in the Middle East created substantial volatility in European gas markets. TTF month-ahead prices surged to 42€ per MWh following Israeli strikes and subsequent US strikes against Iranian nuclear facilities. This dramatic price movement reflected market concerns about potential disruptions to global energy supplies through the Strait of Hormuz.
The Strait of Hormuz represents a critical chokepoint for global energy supplies, handling approximately 1/5 of global oil supply equivalent to 18-21 million barrels per day and 20% of global LNG supplies totaling 115 Bcm/year in 2024.
Iran’s role as an OPEC member producing around 3.3 million barrels per day and exporting over 2 million barrels per day amplified market concerns about supply disruptions.
The announcement of a ceasefire and de-escalation on June 23rd-24th triggered an immediate and sharp market correction. TTF month-ahead prices fell below the 35€ per MWh mark, returning below their one-year average. This recovery was supported by Iran resuming production at its South Pars gas field after repairs from the June 14th Israeli strike, which had initially shut down 12 million cubic meters per day of natural gas supplies.
Israel’s decision to resume operations at its offshore Leviathan and Karish gas fields further stabilized regional supply expectations.
As of July 1st, 2025, EU gas stocks stood at 58.15% capacity on average, significantly lower than the 76.37% recorded at the same time in 2024. This storage deficit highlights the ongoing challenges facing European energy security.
A provisional agreement on gas stock regulation reached on June 24th introduced more flexible rules for member states. The new regulations allow member states to meet the 90% filling target anytime between October 1st and December 1st, with an allowance for up to 10% point deviations during difficult market conditions.
However, uncertainty remains regarding German storage capacity bookings, with SEFE Storage reporting inability to allocate any capacities for the 2025-2026 storage year at the Rehden facility.
Chinese coal production continued its sharp increase, exceeding domestic coal-fired electricity production needs. May 2025 saw domestic coal production rise 5.1% year-on-year to 403.28 million tonnes. However, this growth faces sustainability concerns due to enhanced safety controls, environmental regulatory checks, and declining profit margins.
Daily coal demand in China averaged 12.58 million tonnes per day in May, representing the lowest level recorded in 2025.
Low water levels on the Rhine River are providing upward pressure on API2 coal prices by imposing freight surcharges. Reduced barge loading capacity is forcing additional transportation costs, with API2 Cal 26 prices currently trading above $110 per tonne, their highest level since early April.
The European carbon market exhibited unique behavior during the recent geopolitical volatility. Despite significant upward movements in gas and oil prices, European Emission Allowances (EUAs) actually erased gains and decoupled from the broader energy complex. Instead, EUAs reacted in a “risk-off” mode similar to equity markets.
Carbon market fundamentals were significantly influenced by options trading. June options maintained substantial open interest around €70-75 per tonne, effectively keeping prices locked at that level for several weeks. Following the expiration of these options at the end of June, EUAs continued declining below €70 per tonne, reaching €69 per tonne in early July.
The latest ICE “Commitment of Traders” report showed a further drop in net long positions, with the net position standing at 18 million tonnes long as of June 27th.
European spot electricity prices increased globally since mid-June, breaking a nearly 2-month trend of hovering around €50-55 per MWh. This increase resulted from tightening supply-demand balances driven by both demand surge and supply constraints.
The French power load reached 58.6GW during peak hours on July 1st, marking the highest summer peak since 2019 due to above-normal temperatures and heatwave conditions.
Renewable energy production showed strong performance in June 2025, with German wind output jumping 45% year-over-year and solar generation reaching new records in Germany, Spain, and France. The abundance of solar supply contributed to Germany experiencing over 400 hours of negative or zero prices in the first half of 2025, with some instances reaching as low as, €100 per MWh.
Despite strong solar supply, soaring air conditioning demand during the late June heatwave tightened evening markets, with prices skyrocketing above €500 per MWh in some countries on July 1st.
High temperatures combined with dry weather created new nuclear curtailment risks for French plants. EDF issued warnings about potential production drops for the Bugey and Saint-Alban plants on the Rhône River, as well as the Golfech plant on the Garonne River.
Actual curtailments included the Bugey 2 reactor (900MW) which experienced an eight-day halt from June 28th to July 5th, and the Golfech 1 reactor (1.3GW) which was stopped until July 7th. These combined outages resulted in a reduction of approximately 2.2GW for the first week of July.
The risk of stress corrosion cracking discovered on the Civaux 2 (1.5GW) reactor remains under investigation by nuclear watchdog ASNR. While EDF maintains confidence in meeting annual production targets, the situation requires continued monitoring.
Despite decreased geopolitical risk premiums, further EUA declines remain possible as speculators maintain net long positions. However, the market is expected to be “short” in 2026 due to the linear reduction factor implementation, Market Stability Reserve withdrawals with approximately 184 million tonnes expected from January through August 2026, and the absence of Social Climate Fund allowance sales.
European electricity market risks are skewed to the upside, with French spot conditions expected to remain tight due to anticipated warm weather return, low hydroelectric levels, persistent nuclear production curtailment risks, and ongoing corrosion risk investigations.
Gas market uncertainties
Gas market direction remains uncertain despite fading geopolitical factors. Europe fundamentally needs additional gas to fill storage before winter, with several significant risks on the horizon including the US hurricane season potentially impacting gas flows to Europe, scheduled Norwegian maintenance periods, and rising LNG demand from Egypt for peak power requirements.
TTF prices currently trade at parity with Brent prices and below their 20-day moving average, potentially triggering technical buying and continued volatility.
European energy markets are transitioning from geopolitical volatility back to fundamental supply-demand dynamics. While immediate crisis risks have diminished, structural challenges remain across gas storage, nuclear availability, and carbon market dynamics. Market participants should prepare for continued volatility as these fundamental factors reassert their influence on pricing mechanisms.
The combination of tight gas storage levels, nuclear curtailment risks, and evolving carbon market regulations suggests that European energy markets will remain sensitive to both weather-related demand variations and supply-side disruptions throughout the remainder of 2025.
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