European carbon prices dipped back below €5 on Monday to hand back most of Friday’s hefty gains, sliding in light volume amid a mixed energy complex and a US market holiday.
The Dec-16 EU Allowance futures on ICE closed down 27 cents or 5.3% at the day’s low of €4.80 after a flurry of late selling.
Volume was on the low side at 11.6 million units transacted on the benchmark contract, well below the daily levels averaging near 20 million seen since the start of the year.
Financial markets in the US were closed on Monday to observe Presidents’ Day.
One trader said several failed attempts by the Dec-16s to break above Friday’s €5.07 settlement provided impetus for sellers to push prices lower in the afternoon.
Front-year EUAs jumped by 6.7% on Friday on the back of stronger oil and power prices and as shorts took profits ahead of the weekend.
But Vertis analyst Bernadett Papp said carbon remains entrenched in a technical downtrend, and would need to close and hold above €5.20 to escape it.
“The first critical level is at €5.00. After €5.20, there is a Fibonacci retracement level at €5.50 that might halt the price from advancing further in the next couple of days,” she wrote in a weekly comment.
“To the downside, the first support is the 2016 low of €4.62 [the 22-month low hit last Thursday]. Below this there is a Fibonacci level at €4.39, but the really strong support might be at €4.27, the low from Mar. 2014.”
Redshaw Advisors again highlighted a trend of losses posted during the early part of the week, with the latter part providing some price stability.
“The size of the upturn on Friday would suggest a base may be forming, but this theory must be approached with caution as we have been here before … The previous support between €5.60-5.80 caused a small bounce but eventually the selling pressure won out and the market plunged lower,” they wrote in an emailed note.
“That said we have the best signs of support we have seen so far this year so €4.62 may well prove to be the bottom of this particular bear-run.”
Analysts at Bloomberg New Energy Finance reiterated their prediction made last week that prices will climb back to €6 by mid-year.
“Some traders will probably close their short positions to take profits … We also expect utilities to return to the market, albeit in lower volumes than in 2015 due to weaker spreads,” they wrote in a weekly note.
Dec-16 EUA prices remain more than 40% below 2015’s closing price.
Meanwhile, German baseload power, European coal, UK gas, and Brent crude were all little changed from Friday’s levels.
A group of 25 EU nations earlier on Monday sold 3.425 million spot EUAs for €4.97 each, in a sale that cleared a cent below market and attracted total bids equivalent to 7.1 million units.
At 13.77 million allowances, this week’s auction quotas are around 3.5 million fewer than both last week’s and next week’s levels.
By Mike Szabo – mike@carbon-pulse.com
