Our Energy Economist, Dominic Whittome, shares his Energy Highlights Report on oil, natural gas, and electricity prices in 2025.
Oil
Halting a bull run that began last September, the past 4 weeks have seen oil prices retreating almost all the way back to January 2024 levels.
The first factor perhaps being growing concerns over forward oil global demand amid the ‘Tariff Wars’, ‘Trump Slump’ or, perhaps, the more plausible explanation — the sort of long-overdue decline that one should expect following years of uncharted fiscal slack or monetary largesse, both in our case. The next factor is true across Western economies, though, in America’s case, for example, well over 80% of all the US dollars that have ever existed have been printed under successive Quantitative Easing measures since 2010 or in the aftermath of the Financial Crisis. The market may well have factored in a significant oil demand reduction therefore.
In addition, Saudi Arabia unexpectedly accommodated requests from the US to increase oil quotas, even as other OPEC+ producers were lobbying for the market to tighten, especially to compensate for recent slides in the dollar.
The market may interpret this as a political gesture to the new administration, seeking to maximise pressure on Russia in the run-up to peace talks with Ukraine. If this interpretation holds, however, the sudden supply cutback could be short-lived. Investment banks have cut their oil price forecasts, with some Wall Street refiners citing new resistance levels as low as $65/bbl. The pressure on Saudi Arabia from fellow OPEC Gulf producers and from within the kingdom itself cannot be understated, and it is doubtful that crude below $70 or $75 will be tolerated for any meaningful length of time.
The latest update also highlights a sudden downturn in oil prices, with Brent futures trading below $65/bbl and West Texas Intermediate breaching the $60/bbl level, hitting a new 4-year low. This sharp fall is linked to growing concerns about global demand amidst US tariffs and a broader market sentiment fearing stagflation, which could reduce the appetite for energy-intensive goods globally.
Natural Gas
In the UK, gas market forward contracts continued to fall with further reductions over weekend and overnight in the grey market. The bellwether October Year ’25 gas contract is currently offered below 95 p/th, down from 130 p/th just three weeks ago. The fall in wholesale prices has been substantial.
Up until now, international gas prices had been supported by the prospect of a protracted slump in Russian gas deliveries to France (which has been Russia’s No. 1 gas customer for much of the duration of the conflict in Ukraine), with Spain and Italy also large customers of Gazprom. Even until early this winter, some 15 to 20 million cubic metres a day of pre-contracted Russian gas were still being transported through Ukraine. Officially, such exports have now ceased permanently by EU decree. However, there is the prospect of limited Russian exports returning in the future, which could help to alleviate long-term supply fears that had driven gas prices in recent months.
The international gas market has also been dragged down by the reduction in the petrodollar price of crude oil and petroleum products, against which LNG and long-term gas sales agreements are fixed or indexed over time.
China has also recently banned imports of all American gas, a move that could significantly disrupt the global gas supply chain, particularly if LNG cargoes are redirected to Europe. This will likely have further downward pressure on prices.
Electricity
Base-load electricity prices fell almost in unison. This has been naturally beneficial to industrial buyers who waited slightly longer to re-contract or just as the April Year ’25 Buying Window draws to a close. However, the final industrial & commercial electricity bills will not be changing as much as the fall in headline base-load power prices may suggest. This is due to the soaring cost of load-shape. Volatility in the day-ahead (inter-day) market and intra-day market has shown few signs of easing, with N2EX within-day prices clipping a record £975/MWh on 11th January.
As well as higher balancing costs, business electricity customers are facing sharp rises in non-commodity costs starting in April. An I&C bill now contains over 90 separate distribution service charges, transmission service charges, and a multitude of government levies; they together account for 60-70% of a typical I&C power bill.
To make matters worse, it is understood that in some parts of England, over 35% of all electricity bills currently issued to businesses are incorrect. Historic over-billing has accumulated to substantial high levels in some cases. Only the last 6 years of historic over-billing can be recovered off the DNO in question, and the ESO (it is 4 years maximum in the case of unclaimed VAT rebates or other HMRC refunds).
Non-commodity charges in question here are essentially ‘pass-through’ network charges. Calculated by the Distribution Network Operator (DNO) and by the Energy (transmission grid) System Operator (ESO), they are billed by the supplier who has the contract with the end user. These charges represent the most opaque and complex area within the electricity industry.
Market Sentiment & US Tariffs
The latest energy update also touches on the broader economic ramifications of the growing US tariff war, particularly the potential for stagflation to weigh heavily on global energy demand. Tariffs are seen as a double-edged sword — they could reignite inflation, but at the same time, they may provide the US with a tool to reduce its massive deficit. The tariff increases announced last week are the highest recorded in the US since the 1960s and are fueling concerns about sustained inflation.
In the oil and gas markets, the overall sentiment remains bearish for the time being, with global commodity prices under pressure. The stagflation risk is seen as a key factor, with global investors turning away from equities and towards bonds and safe-haven assets.
On the flip side, some analysts argue that these tariffs might not be a problem but part of a larger strategy to reduce the deficit and protect the petrodollar, the US dollar’s monopoly status in global oil and gas trading. With BRICS nations and other large oil producers already diversifying away from the dollar, this strategy aims to keep the petrodollar strong against the rise of alternative trade settlement systems.
Dominic Whittome
Dominic Whittome is a energy consultant with a background in economics and econometrics. He has 28 years of experience in the industry principally in the supply, trading and corporate finance spheres. Serving as analyst, commercial manager and head of trading within EDF Energy, ENI UK and Mobil North Sea before he joined Prospect Law and has since specialised in energy purchasing; contract arbitration and commercial development of infrastructural and renewable power projects.
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