European carbon prices dropped in heavy trading on Wednesday on the back of tumbling energy prices and a weaker euro, and despite the rare absence of new supply coming to market.

The front-year EU Allowance futures on ICE settled down 8 cents at €8.48, a cent above the intraday low.

Volume on the benchmark contract was high at 20.9 million units changing hands, with a further 15.2 million traded along the rest of the curve.

“With a lack of auction, you’d have expected higher carbon prices, but everything was pulled lower by oil and the euro,” one trader said, referring to the rare instance of no government auction being held.

“I don’t see any other reason why carbon should be coming off this much.”

Oil prices dropped, weighing on gas and power, after US data revealed growing crude stockpiles and Iranian claims that most OPEC members would support supply cuts at their upcoming meeting were rejected by market participants.

Meanwhile, the euro fell to its lowest against the US dollar in more than seven months after data showed inflation in the eurozone was lower than expected, suggesting that the ECB may ease its monetary policy further this week.

Calendar 2016 European coal prices lost around $1 to $45.35/tonne on ICE, a new 12-year low, while German baseload power prices also fell by more than 1% across the board.

The factors combined to lift the Cal-2016 German clean dark spread, while weakening the 2017 and 2018.

Government auctions resume on Thursday, with a group of 25 EU nations due to sell 2.918 million spot EUAs.

CER prices also dropped on Wednesday, with the Dec-15s losing 2 cents to €0.58 on volume of 490,000.

Some 250,000 EUAAs for delivery this month also changed hands EFP on ICE.

By Mike Szabo – mike@carbon-pulse.com