(Updates with closing prices)
EU carbon prices rose as much as 6.9% on Thursday as oil prices led the energy complex higher and as Germany’s draft paper on minimum EUA price raised the prospects for political intervention.
But the benchmark Dec-16 EUA futures failed to hang on to most of those gains and settled up 7 cents at €6.20, near the bottom of the day’s €6.11-6.55 range, on relatively healthy volume of 17.1 million.
The volume was higher than expected as many traders were absent due to a public holiday in much of continental Europe, which also meant there was no government auction scheduled today.
“The main driver is definitely energy prices, with gas very strong today, but the Germany paper is stirring hopes that politicians are looking to take more action to raise EUA prices,” said one trader.
Front-month Brent crude oil climbed by more than a dollar to $45.90/barrel as the huge wildfire near Canada’s oil sands and heightened tensions in Libya stoked fears about near-term supply, though prices sank back in the afternoon.
This dragged up prices across the energy complex, with strong gains in UK gas and ARA coal prices, and Cal-17 baseload German power prices up as much as 89 cents to €24.40/MWh on EEX.
This pushed German clean dark spreads for 2018 and 2019 to multi-week highs, as power price gains eclipsed those of coal and carbon.
But Wednesday’s news that Germany is considering supporting a minimum ETS price was the main talking point for traders, with some suggesting it could be decisive in raising enough backing for the measure.
Yet analysts cautioned that the paper was not a firm sign of support from Germany.
“The German paper could be significant but it’s clear that this is just the first step in the process and the EU is a long way from agreeing any form of carbon price support,” said Jan Ahrens, an analyst at ICIS-Tschach Solutions.
Germany has long favoured reforms to strengthen the EU ETS but, like most EU lawmakers, has been reluctant to consider direct price support.
The draft is also yet to be signed off by Environment Minister Barbara Hendricks, let alone Economy Minister Sigmar Gabriel, who draws much of his support from lignite-mining regions wary of moves to wipe out jobs.
“There are very few details in the reported draft, and it would also represent a bit of a U-turn from the ministry’s recent remarks about being wary of price controls in the ETS,” said Ahrens.
A second trader noted that relatively little – less than 1.5 million units – had traded on other vintages on Thursday, which suggested much of the activity was driven by speculators rather than utilities, which led some to caution that the gains could quickly unravel.
“Traders are very nervous and we can see high volatility,” he said, referring to last week’s sudden jumps that pushed prices to a three-month peak of €7.07 but that were quickly followed by four straight days of losses that knocked them down to €5.83 on Tuesday.
By Ben Garside – ben@carbon-pulse.com
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