EU carbon prices lost further ground on Wednesday as market participants said industrial emitters were offloading their newly acquired 2016 allowances to raise cash.

The Dec-15 EUA contract fell as much as 5.5% to €4.67, just five cents off the 22-month low hit earlier this month, before clawing back ground in late trade on the back of rising oil prices.

The benchmark carbon contract eventually settled 2 cents lower at €4.89 on ICE, on fairly modest turnover of 17.8 million.

The loss follows Tuesday’s 51-cent loss, which was the biggest daily fall since Jan. 2015.

Traders blamed an influx of supply from cash-strapped smaller industrial companies, particularly from economically depressed parts of southern Europe, that have just received their 2016 free EUA allocations.

“These companies aren’t concerned about selling when prices are so low, because they may not be around for prices to get any higher,” said one broker.

“They tend to be long anyway because their production numbers have been down, which is why they are searching for alternative sources of cash.”

Carbon retained its correlation with oil, as crude prices dipped early on but surged after the publication of US data showing total the country’s oil and gasoline stockpiles had fallen week-on-week.

Front-month Brent crude prices were up 93 cents at $34.20/bbl at the time of writing.

STEADY SIGNALS

There was little market movement around the UK’s fortnightly auction of 3.49 million EUAs on ICE.

It cleared 3 cents below market at €4.69, with bid coverage of 1.63, the highest for a UK auction this year after previous ones have averaged 1.44.

There was also little direction provided by the power market. German clean dark spreads nudged only slightly lower as weaker baseload power dampened the impact of lower coal and carbon prices.

By Ben Garside – ben@carbon-pulse.com