EU carbon continued its sharp decline on Wednesday, falling 5.8% to hit a fresh 22-month low before climbing back in late trade.
The Dec-16 EUA contract dropped as much as 28 cents to €4.69 early in the session but clawed most of the losses back after matching volatility in oil prices around the release of US stock data, and what appeared to be a bout of profit-taking by shorts in the final minutes.
The benchmark carbon contract settled down 8 cents on ICE at €4.89 on heavy volume of over 29 million, more than 600,000 of which was traded in the final 10 minutes.
Carbon has lost 12% of its value between last Friday and today’s settlement, as analysts have slashed forecasts and traders see no potential end to the rout that has wiped more than 40% off the price of EU emissions so far this year.
“It’s hard to tell when this fall will end. A lot of people appear to be short and still taking the opportunity to push prices lower whenever they can,” said one trader.
He attributed the lack of support for EUAs to the ongoing lack of strong buying from utilities.
Carbon was relatively stable around €4.70 levels until mid-afternoon, when prices briefly spiked to as high as €4.96 just ahead of the publication of US weekly crude oil inventory data at 1530 GMT.
The data release has become a target for carbon speculators in past weeks as stronger correlations between crude oil and EUAs have emerged.
POWER, SPREADS, AUCTION
German power prices have moved in sympathy with carbon’s heavy losses this week. Next-year baseload German power was down 35 cents to €21.25/MWh on EEX on Wednesday.
But while the two commodities largely cancelled each other out earlier in the week to leave utility profit margins little changed, spreads narrowed on Wednesday as a weaker euro made coal imports more expensive.
The German clean dark spreads narrowed by around 7% for Cal-2017 and some 10% for both 2018 and 2019.
The UK’s fortnightly auction gave a fairly weak signal for EUAs but prices were little changed around it.
The sale cleared 5 cents below market on ICE, with bid coverage of 1.51 – a similar ratio to the year’s two previous UK sales but below the 2016 average so far of 2.21.
By Ben Garside – firstname.lastname@example.org