EU carbon prices gained for a second consecutive session after building on momentum from Tuesday’s government auction clearing above market.
The benchmark Dec-15 EUA contract settled up 9 cents on ICE at €8.65, near the top of the day’s €8.57-8.66 range on strong volume of 16.3 million units.
The benchmark contract jumped 4 cents after the EU’s auction of 2.9 million spot EUAs cleared 2 cents above market at 1000 GMT, bucking the normal trend of a slight discount to secondary market prices.
Bid coverage was 3.74, the most since Nov. 9 and well above the year-to-date average of 3.08.
This was in stark contrast to Monday’s auction, when secondary prices briefly dropped 4 cents after the sale cleared some 5 cents below market – the largest discount notched since Nov. 11.
Secondary market prices often move a cent or two immediately after auctions as traders immediately sell on the units or are forced into the market if their bids were unsuccessful.
Analysts have this week put emphasis on the price-driving significance of auction volume, which has been consistently high over the past two weeks as prices have remained steady.
“We do not expect prices to move far from the €8.50 level over this week, before the drop in auction volumes stimulates a move upwards in prices,” said analysts Energy Aspects in a weekly note on Tuesday.
This week’s 15.08 million auction supply maintains the high level sold over the previous two weeks, but volume slips to 11.9 million next week, then back to 15.1 million before closing out the year on the week starting Dec. 14 with 8.7 million.
Meanwhile, the energy complex gave a mixed signal for carbon, with the Calendar 2016 German clean dark spread widening, the 2017 spread little changed and the 2018 spread narrowing.
The less liquid Dec-15 CER contract dipped 3 cents to €0.63 on ICE on volume of 212,000, while the Dec-16 CER ended flat at €0.58 on 25,000 units.
The benchmark Dec-15 CER has eased back since hitting a two-year high of €0.68 last week, amid a flurry of activity along the front of steeply backwardated futures curve likely related to arbitrage spread trades.
By Ben Garside – firstname.lastname@example.org