EU Market: Carbon rises as oil lifts energy complex

Published 16:54 on January 26, 2016  /  Last updated at 18:03 on January 26, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices rose on Tuesday afternoon after hitting a fresh 20-month low as crude oil climbed back above $30/barrel, pulling the rest of the energy complex higher.

European carbon prices rose on Tuesday afternoon after hitting a fresh 20-month low as crude oil climbed back above $30/barrel, pulling the rest of the energy complex higher.

Front-year EUA futures on ICE closed up 19 cents or 3.2% at €6.10, a cent below their intraday high.

The benchmark contract fell to €5.61 in the first few minutes of trade on brisk selling. That was the lowest level seen since June 2014.

Volume on the Dec-16 EUAs was heavy today at more than 22 million units changing hands.

WTI and Brent futures turned positive and were up by more than $1 to above $31 each after Iraq’s oil minister suggested that Saudi Arabia and Russia were more open to cooperating to cut output.

According to Bloomberg, Adel Abdul Mahdi on Tuesday said the world’s two biggest oil producers have become more flexible about working together to trim output after crude prices fell by more than they had expected.

Oil’s gains also fed through to UK gas and European coal, with the former’s Summer 2016 contract gaining around 2.5% since 1500 GMT to 28.7 pence/therm, and the latter erasing earlier losses to gain 25 cents to $38.75/tonne on the Cal-17 futures on ICE.

German baseload power for delivery next year was also up by 32 cents or 1.4% to €23.45/MWh, after having been little changed earlier.

One market watcher said carbon appeared more buoyant than peripheral energy prices due to speculative short-covering.

Front-year EUA prices remain down 26.4% for the year to date, a steep fall that many have attributed mostly to speculators.

“The sharp drops on certain days are more suggestive of market participants with considerable
length to sell,” said Trevor Sikorski, lead carbon analyst at Energy Aspects.

“The market was firmly bullish for much of 2015 … [and the] bull story was firmly entrenched and would have helped to push up speculative long open interest.  But the cracks in the story started to show in
December,” he wrote in a weekly note.

Sikorski noted that carbon’s upward trend, which had been in place since at least Mar. 2015, stalled last month, which was especially concerning for many market participants as it came during a period of no fresh supply coming to market via government auctions.

“Also, the prevailing outlook [has] turned far less bullish,” he added, referring to increased auction volumes this year due to Backloading, and a muted buyside made up mainly of utilities facing lacklustre generation spreads.

“Given that, it seems the year started with some of those speculative positions (or a few big ones) being unwound, leading to others being stopped out. As prices have dropped, positions may go from short to long but the lack of a fundamental reason for being bullish suggests this is not all that likely. The issue for the carbon market is, given the still high level of inventory, there is no fundamental price floor – it may be far too early to call the bottom for the current price falls.”

Earlier on Tuesday, a group of 25 EU member states auctioned 3.425 million spot EUAs for €5.80 each, in a sale that cleared 11 cents below market and attracted bids from 24 participants totalling 6.8 million units.

The large discount to the secondary market had little impact and was played down as front-year EUAs had been bid up aggressively in the minutes before the auction’s bidding window closed.

By Mike Szabo –