European carbon prices hit an eight-day high on Thursday as technical indicators signalled that the market may have broken out of its downward trend channel after bottoming at their lowest since 2014.
The Dec-16 EUA futures on ICE closed up 18 cents at €5.28 on heavy volume of nearly 27 million units changing hands.
The benchmark contract climbed as high as €5.39 in afternoon trade, before a wave of selling just after 1600 GMT knocked nearly 20 cents off prices.
More than 2.7 million units were transacted in the space of 10 minutes after the front-year EUAs hit their intraday peak.
The sale orders were likely linked to falling crude oil and profit-taking in carbon after two days of gains that saw EUAs rise as much as 70 cents or 15% from Tuesday’s settlement.
A number of observers noted that EUAs had touched intraday lows of €4.62 twice in the past week, failing to break below that 22-month low the second time.
“EUA prices formed a double bottom, [and] another buying signal [emerged] after prices broke out of their downward trend,” GDF Suez Trading tweeted.
Market watchers had placed the upper band of that steeply-sloped downward trading channel at around €5.17, adding that a breach and close above this level would confirm a break-out.
A total 30.1 million EUAs were transacted on ICE’s futures contracts on Thursday, and with the Dec-16s accounting for some 90% of that, it suggested that most of the day’s action was speculator-driven.
EUAs appeared to follow oil prices in retreating from their intraday high after 1600 GMT.
Front-month Brent crude had been trading around $1.20 higher at $35.70/bbl before the US Energy Information Administration released inventory data showing stockpiles rose by 2.1 million barrels last week.
While the gain was smaller than expected, the data contradicted an earlier report suggesting inventories fell by 3.3 million barrels, leading prices to slip back to near Wednesday’s settlement level.
Meanwhile, German baseload power supported EU carbon, rising some 2% across the board to lift prices further from their recent record lows.
However, front-year Rotterdam coal also rose by 2%, meaning that when combined with higher carbon and a softer euro, it left the German clean dark spreads mostly unchanged from Wednesday despite today’s large moves in the underlyings.
“Yesterday’s [40-cent] rally saw some follow-through today but reaction was relatively muted, suggesting the shorts were more or less satisfied with the volumes available in the auction today,” said Tom Lord of Redshaw Advisors.
A group of 25 EU member states earlier in the day sold 3.425 million spot EUAs for €5.22 each, in an auction that cleared a cent below market and attracted bids from 18 participants totalling 6.84 million units.
That translated into a bid-to-cover ratio of 2.00, which was lowest for an EU-25 auction since Feb. 1.
Germany will auction 3.495 million EUAs on Friday, before weekly volumes ramp back up to 17.26 million units next week from 13.77 million this week.
[Today’s rise] points to the chance of further gains tomorrow, particularly if the recent weeks’ pattern of price development on Fridays and Mondays is repeated,” Lord added, referring to a pattern of gains recorded in the final day of the week and losses posted on the first day back following a weekend.
“Technical traders will probably be targeting €5.60-5.70. However [EU member state] free EUA allocations loom and fundamentals are largely unchanged.”
By Mike Szabo – mike@carbon-pulse.com
