EU carbon prices slipped 3.4% on Wednesday to move back towards the previous session’s 20-month low of €5.46, as EUAs briefly tracked a volatile oil market but failed keep pace with its late gains.
The Dec-16 EUA contract ended down 20 cents at €5.64, towards the bottom end of the day’s €5.52-5.85 range, on healthy volume of 16 million.
Prices were in negative territory from the first minute of trade, dipping further after a weak Polish auction, before dropping amid brisk mid-afternoon selling as the front-year contract broke below €5.70.
This came just ahead of the weekly US oil inventory data at 1530 GMT, which some market watchers said had been a target for some carbon speculators in light of the stronger correlations between EUAs and crude oil that have emerged throughout carbon’s 30% collapse in January.
“(The US) published bad numbers and the moment Brent started to drop, carbon just followed,” said one broker, referring to a 10-cent drop in EUAs to the day’s low after having already been down by 22 cents or 3.8% when the data was released.
Front-month Brent prices briefly fell after the data showed a bigger-than-expected rise in US stocks, but quickly rebounded to gain as much as 6% or $2 to $34.81/bbl on perceived profit-taking by shorts.
EUAs also turned upwards but failed to keep pace.
“It makes me wonder if only prop traders are on the market and utilities are still on the side, waiting for carbon to find its bottom. With (big) compliance clients standing aside, traders are following oil for market direction,” the broker added.
Meanwhile, utilities got a stronger incentive to enter the market as German clean dark spreads rose to their highest levels this week as power prices nudged higher, carbon fell and a stronger euro made slightly weaker coal prices cheaper for continental utilities.
Poland, in its first EUA auction of 2016, sold 3.526 million spot EUAs at 8 cents below market. Bid coverage was 2.05, close to the 2016 average of 2.21.
Prices dropped as much as 9 cents in the minutes after the sale cleared.
Poland’s auctions this year feature the most volume of any government sale.
By Ben Garside – ben@carbon-pulse.com
