Market commentary September
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Not a month goes by without a microscopic look at the macroeconomics of the world’s most important chokepoint: the Strait of Hormuz. Following the resumption of military hostilities between the US and Iran, concerns about security of supply – and consequently the upward pressure on energy prices – resurfaced. At the same time, the market demonstrated that a supply shock does not necessarily have to result in extreme prices. China was able to cushion part of the shock on the oil market through adjustments on the supply side. For Europe, however, the situation remained fragile, as its fundamental dependence on global price movements remained unchanged.
Neither war nor peace - that is a brief description of the situation in the Persian Gulf. Having failed to subdue Tehran by military means, the US and Israel are now preparing for the next steps. What these will be remains unclear. What is certain, however, is that the northern hemisphere’s winter season is just around the corner and the Strait of Hormuz is still not clear. For Europe, this means, above all, dependence. We are exposed to the volatility of gas, power and oil prices and have no power to set prices. On an annual basis, we do not exceed a 55 % share of renewables, even for power. For gas, the share of Europe’s own production stands at 49 %; for oil, at 33 %. What is within our control for the coming winter is therefore primarily the fill level of our storage facilities. On 31 August, Germany’s fill level stood at 52.6 %, whilst the EU average was 65 %. At the same time, filling storage facilities is currently hardly worthwhile: why buy at high prices on the spot market when forward contracts for the winter indicate cheaper prices?
This is precisely where a political misalignment of incentives lies. The German Energy Industry Act stipulates a storage level of 80 % by 1 November, but does not provide for any sanctions if this target is not met. It is sufficient for traders to book storage capacity; they are not obliged to use it. At the same time, market participants know that, if necessary, THE can fill storage facilities on behalf of the state. In 2022, this intervention cost around nine billion euros. The problem here is not just the cost to Germany. If it were to purchase large quantities of gas during a shortage, this would affect prices at all European hubs. We are now repeatedly hearing statements from Germany that supply is secure and that sufficient LNG import capacity is available. At the same time, a genuine gas storage reserve is being built up for next summer: 10 % of annual demand is to be set aside in case (Norwegian) pipeline gas is not available. Germany is labouring under the misconception that there is a German market (price). All EU countries are in the same boat, and if that becomes unstable, we will all feel the same effects.
In the last week of August, the Austrian base power contract Cal 27 rose by 3.4 % to 127 EUR/MWh, its highest level since January 2023. Since 5 August, the trend has been clearly upwards, fuelled by tensions between the US and Iran. The situation in Austria was already tense at the start of the month. The price difference with Germany averaged around 30 EUR/MWh for the week, at times even reaching 237 euros. Meanwhile, the German day-ahead average was already at 114.79 euros. The volatility in the intraday spread was particularly pronounced: between 11 am and 4 pm, solar generation pushed the price down to 22.41 EUR/MWh, whilst in the evening it rose to 303.57 EUR/MWh. This was due to a Europe-wide supply bottleneck caused by low water levels and excessively warm river water. Alpine tributaries were around 50 % below average in July. In France, EDF recently curtailed 9.2 GW, or 14.6 %, of its nuclear capacity. At least, as September begins, generation from wind and solar is providing some relief on the spot markets; the first week of September averaged 100–130 EUR/MWh thanks to good wind and solar generation, in contrast to the average of 150 EUR/MWh for the whole of August, during which prices reached as high as 487.38 EUR in some cases in the evening. This level is high compared with previous years.
The gas market also remained under upward pressure. Coal continued to top the merit order, gas-fired power station margins rose by 3 % week-on-week, and the Cal 27 reached 48.68 EUR/MWh. At the same time, European LNG imports rose by 21 % month-on-month in August to 112 TWh. This primarily supported gas storage and, consequently, spot gas prices. As early as the third week of August, the rise in gas prices had driven several power futures market products to new record highs.
Some relief came from the global LNG market. Asian demand has recently fallen by 25 %, whilst US LNG has been flowing into Europe in greater volumes and Atlantic freight rates have fallen by 65 % since the start of August. At the same time, the oil market demonstrated the power of supply adjustment. Before the conflict, Brent had stood at USD 65 per barrel because a massive oversupply had been expected for 2026. Despite the six-month blockade of the Strait of Hormuz, the price returned to a moderate USD 86 in August. China played a decisive role: high stock levels were utilised, exports of refined petroleum products were halved between February and April 2026, and domestic consumption was reduced through greater use of rail links instead of cars and airplanes. China thus controlled global oil supplies in recent months in place of OPEC.
August has left us not with a sense of relief, but with yet another layer of uncertainty. Europe’s energy prices continue to be largely determined by developments over which Europe itself has only limited influence. This brings into sharper focus what is within Europe’s control: sufficient storage levels and a coordinated approach. After all, there is no such thing as a German energy price that can be decoupled from the European market. When the boat is rocking, everyone should row in unison.
Andre Masannek
For the Inercomp team
