European carbon prices ended marginally higher on Monday amid light volume and a narrow trading range.
The Dec-16 EU Allowance futures trading on ICE closed 2 cents higher at €5.02 on quiet turnover of 8.7 million units.
A further 1.7 million changed hands down the rest of the curve.
The benchmark contract jumped at the open and touched its intraday high of €5.05 before slipping back throughout the morning to its session low of €4.85, only to claw back those slim losses in the afternoon.
Carbon received little in the way of direction from peripheral energy prices, with crude oil adding around $1 to near $36.45/barrel.
European coal prices eased slightly, but their effect on the German clean dark spread was erased by a weaker euro and lower German baseload power prices, which lost upwards of 1%.
Prices were also little changed around the EU auction for 3.425 million spot EUAs, which cleared one cent above market at €4.85 and attracted bid coverage of 1.64. That was well below the year-to-date average of 2.20 and last week’s average of 2.25.
“The fact that [carbon hasn’t] hit a new 22-month low since Feb. 11 could make some market participants optimistic regarding the price performance in the coming days,” said Vertis analyst Bernadett Papp, referring to the double bottom of €4.62 touched earlier this month.
“On the other hand, the huge supply (auctions every day and the 2016 free allocation being handed out) and the weak energy prices continue to weigh on the price,” she added, identifying the 20-day moving average, currently at €5.15, as the next technical resistance level.
WHERE NEXT?
Views amongst analysts were mixed as to where EUA prices go next.
“[We see] a bullish indicator constellation on the increasing buying interest at current prices. The MACD … is generating a buy signal and the RSI has broken out of its downward trend. With the simultaneous jump over the 30-mark, a buy signal was generated here also,” wrote EnergyCharts.de.
Analysts at Thomson Reuters Point Carbon said they have bullish outlook for carbon this week as potential strength in surrounding markets could set the stage for short-covering.
“Since energy markets have been pulling carbon lower recently, a respite might offer traders cover to refocus on carbon’s fundamentals and the fact that 2016 will see an annual shortage of allowances. A neutral development is also quite possible as the technical picture is neutral.”
However, Clive Lambert of technical analysis firm FuturesTechs.com was less optimistic.
“We got to €5.49 last Monday and that was as good as it got for the bulls. We have since tracked back to retest (and so far hold) the Feb. 17 low at €4.62 … It’s in the mix, bearish for choice in line with the overall trend, and we would ask for a sustained push through €5.49 to change this outlook. We are still targeting €4.27 to the downside,” he wrote in an emailed note.
Redshaw Advisors were also feeling bearish.
They noted that the 2016 free EUA allocation was nearly complete, which may result in some selling from industrials looking to raise cash.
“However, it remains our view that this will likely be muted at these levels, with many long installations seeing shortfalls on the horizon in Phase 3 (2013-2020). Balancing sell-side interest are much improved clean dark spread levels and compliance buying,” they added.
“Overall, this leads us to believe there will likely be more sideways movement for the carbon price as the market tries to find some direction with a bias to the downside.”
By Mike Szabo – mike@carbon-pulse.com
