EU carbon prices posted their biggest daily increase so far this year, rising 8.5% on Wednesday to rise out of their bearish trend channel on the back of an afternoon jump in oil prices, which triggered wider gains across the energy complex.
The Dec-16 EUAs settled up 40 cents at €5.10 on ICE, just four cents off the day’s high, having earlier touched the 22-month low of €4.62 hit last week. Turnover was a heavy 24 million.
The benchmark carbon contract rose steadily throughout the session but made a sustained move above €5 in the last two hours of trade, as oil surged by as much as 7% on news that Iran’s oil minister welcomed a co-ordinated effort among producers to stabilise prices. Carbon has correlated closely with oil in recent weeks.
Other energy prices also climbed on what was widely seen to be a tacit endorsement of the first oil price support pact agreed outside of OPEC in some 15 years.
Next-year baseload German power prices rose 24 cents or 1.2% to €21.09/MWh on EEX after hitting a fresh record low of €20.65/MWh, but clean dark spreads narrowed amid more pronounced hikes in carbon and coal, which itself gained 1.7%.
“The EU carbon price has now convincingly broken out of its downward trend, setting the stage for a rebound,” said analysts at Thomson Reuters Point Carbon on Twitter.
Yet some traders were more cautious, with many still licking their wounds following the volatile drop in recent weeks that has seen more than 40% wiped off prices since the end of 2015.
“I would be careful to call it the bottom, but it feels like €4.62 was the lowest level for carbon. A couple more days with positive numbers and I could call it end of the rout,” said one trader.
Carbon is still 38% down for the year to date following a collapse fuelled by speculative trading and intensified by lighter utility buying and some cash-strapped industrials selling surplus units.
But today’s upward move has caused the contract’s Relative Strength Index to rise above 30 for the first time since early January, a level that can indicate a commodity is oversold.
Thinly-traded CERs failed to react to the move, with the front-year contract settled at €0.35, a 20-month low.
EUAA PARITY
Wednesday’s gains came amid a pause in the near-daily EUA auctions, with Poland instead holding its only EUAA sale this year.
The EEX-hosted auction for 120,000 spot aviation units cleared at €4.80, the same level as the Dec-16 EUAs at the time. Twelve participants submitted bids equivalent to nearly 14 times the amount of EUAAs on offer, with just two companies winning the auction.
The less liquid EUAAs have previously traded at a heavy discount to EUAs, but this differential has gradually narrowed over the past year, falling from 38 cents last May to just 3 cents in last month’s EU sale.
By Ben Garside – ben@carbon-pulse.com
