European carbon prices dipped on Wednesday as traders took profits following the recent rally back from 11-week lows, and as falling oil prices weighed on the entire energy complex.

The Dec-16 EUA futures trading on ICE settled down 6 cents at €8.20 after hitting a three-day high of €8.31 early in the day.

The intraday peak was 4.4% above Tuesday’s trough of €7.96, which was the lowest level seen since Sep. 29. Volume was light at 10.8 million units changing hands on the bellwether contract.

“We’ve seen some profit-taking this afternoon, and the sell-off on oil has knocked everything,” one trader said.

Both Brent and WTI crude oil fell around 3% each on US inventory data showing stockpiles were at record highs, adding additional pressure to prices following Congress’ decision to lift the ban on US oil exports.

Another trader said the light selling on EUAs was also pre-empting the US Federal Reserve’s expected decision to raise interest rates for the first time since 2006.

The American central bank decided after the European market close to lift the benchmark rate by 0.25%, a move that could weigh on EU utilities via a weaker euro and dearer coal.

The first trader said the EUA market “still feels a bit soft” following the near 9% drop seen between Dec. 4-14, but suggested that a foundation of long positions built by bullish speculators and utilities between Monday’s bottom and current levels remains largely intact.

No auction was held on Wednesday. Thursday will feature the last sale of the year, when a group of 25 EU nations offloads 2,818,500 spot allowances.

Auctions then resume on Jan. 11, with weekly totals rising due to fewer units being removed from the market next year under the Backloading programme.

Meanwhile, CERs appeared to have halted their drop, at least temporarily.

The Dec-16 futures settled a cent higher at €0.49, after losing 20% between Nov. 25’s intraday high of €0.59 and Monday’s bottom of €0.47.

By Mike Szabo – mike@carbon-pulse.com