EU carbon prices got within 2 cents of their 22-month low of €4.62 on Tuesday as EUAs tracked oil and traders grew wary that industrial firms would add to supply later this month by offloading some their free 2016 allocations.
The Dec-16 EUA settled down 11 cents at €4.70 on ICE, at the lower end of the day’s €4.64-4.95 range, on turnover of 18 million – relatively thin for what has been a volatile start to the year.
The benchmark carbon contract sank gradually throughout the morning and repeatedly bounced off €4.64-4.65 – just shy of last Thursday’s nadir – for most of Tuesday afternoon.
“Carbon appeared to track the oil price tick-for-tick today, which would suggest market participants are unsure what prices will do next,” said Tom Lord of traders Redshaw Advisors.
Front-month Brent crude rose to a 12-day high of $35.55/bbl earlier, but later fell back as Russia, Saudi Arabia, Qatar and Venezuela agreed to freeze current production levels and Iran refused to join them.
German power prices dipped in sympathy with carbon, but the effect of this on clean dark spreads was largely cancelled out by a drop in coal prices.
“Market sentiment still feels overridingly bearish and while current prices may look like a good entry point, the threat of even more downside is unlikely to be discounted by market participants,” wrote analysts at Energy Aspects in a weekly note.
BOTTOM REACHED?
Today’s slide follows Monday’s 27-cent loss and is the eight session of the past nine that carbon has lost ground. Prices remain down some 43% since the end of 2015.
“We still think this bottom is too early to call, and the market signals are mixed for the coming week – the weather is looking more supportive, with below-normal temperatures likely to persist to the end of the week,” Energy Aspects added.
“Despite that, some downside pressure could occur as February is the month when free allocations are made to industrials, and this can lead to some sales, particularly if the industrials start looking to carbon for some finance.”
Carbon briefly dipped following the EU’s auction of 3.425 million spot EUAs. The sale cleared 5 cents below market though the 2.39 bid coverage was slightly above the year’s 2.11 to-date average.
No EUAs will be put up for sale by governments on Wednesday as Poland instead sells 120,000 spot EUAAs in its sole aviation allowance auction of the year.
By Ben Garside – ben@carbon-pulse.com
