European carbon hit a fresh 10-month low early on Monday before reversing course and ending slightly higher, marking only the second time this year that EUAs have posted a daily gain.
The front-year futures trading on ICE dipped to an intraday low of €6.56 several times in the first few hours of the session, before buyers stepped in and pushed the benchmark contract higher.
The Dec-16s ended the day up 5 cents at €6.77, on heavy volume of 17.2 million units changing hands.
Traders said the early drop may have been due to more short-selling on the back of last week’s 10% loss and as crude oil led the energy complex lower after international sanctions on Iran were lifted over the weekend.
But one trader said some utilities may have commenced some light EUA buying with prices at their lowest since March 2015, which in turn could have prompted a few shorts to take some profits off the table.
The bellwether futures remain some 18% below their settlement on Dec. 31, 2015.
In that time, open interest on the ICE contract has risen by some 10.5 million units, which some market participants said could suggest a rise in speculative short positions, as well as increased selling by industrials – which may sell EUAs spot to banks. Financials may then book the spread and offload those units into the market via the futures.
Analysts at Thomson Reuters Point Carbon said they are bearish on EUA prices this week “on the back of an overall technical short-term outlook with the wider energy market adding to the bearishness.
“However, with the Dec-16 contract being in deep oversold territory, a rebound may be due anytime.”
“There are (and were last week already) technical signals saying that there should be a correction in the price, but the market doesn’t seem to care about technical analysis at the moment,” added Bernadett Papp, an analyst with Budapest-based Vertis, highlighting the Dec-16s’ RSI below 20 and a MACD level not seen since Apr. 2014.
Papp cited the next technical support levels at €6.50 and €6.38, adding that fewer EUAs on offer at government auctions this week could help lift prices.
“Should buyers find current levels attractive enough to purchase EUAs, the resistance levels the price has to break are some Fibonacci lines at €7.03 and €7.28.”
Meanwhile, a group of 25 EU member states earlier on Monday sold 3.425 million spot EUAs for €6.52 each, in an auction that cleared 5 cents below market and attracted 18 bidders who collectively submitted bids worth a total 6.2 million units.
That translated into an oversubscription rate of 1.82, which was well below both last year’s average of just over 3 and the 2.42 mean recorded in 2016’s first five sales.
US markets were closed on Monday to observe the Martin Luther King Jr. Holiday.
By Mike Szabo – mike@carbon-pulse.com
