EU carbon prices closed at their highest in two weeks on Monday, guided higher by a late buying surge and as the wider energy complex was lifted by Brent crude rising above $40 for the first time this year.
The Dec-16 EUA futures listed on ICE ended up 17 cents at €5.10, near the top of the day’s €4.88-5.11 trading range.
Volume was initially light but picked up in the afternoon, culminating in 2.7 million out of the session’s total 15.7 million done in the final half hour of trade, when prices staged a modest rally to end the day.
Front-month Brent was up $1.87 to $40.59/bbl on ICE at the time of writing, jumping after UAE’s energy minister said current prices are deterring producers from increasing output.
Oil prices have risen in the past few weeks after major producers including Saudi Arabia and Russia agreed to freeze output at January’s levels.
Analysts said oil was still reacting to Friday’s strong US jobs numbers, adding that higher crude could also dissuade other countries from cutting production.
Rises in German power also supported carbon, with the front-year baseload contract topping €22/MWh for the first time in a month. The Cal-18 and -19 contracts posted similar gains of around 3% each.
However, European coal also posted a large increase, with the front-year Cal-17s climbing by more than $1.50 to above $41/tonne for the first since late 2015. Coal prices have jumped over the past week on news that workers at Colombia’s largest mine had voted to strike.
Coupled with a firmer euro, these factors combined to nudge up the German clean dark spreads slightly, helping to underpin carbon’s recent gains.
“We expect [EUA] prices to continue to consolidate at current levels this week. The bellwether contract seems to have strong support and limited risks to the downside, and a potential break of the 20-day moving average might induce some confidence in the bulls,” analysts at Thomson Reuters Point Carbon wrote in a weekly note published earlier on Monday.
The front-year EUA contract managed to close Monday above its 20-day moving average for the first time since Feb. 22, a sign some may see as boosting bullish sentiment.
“Despite bearish fundamentals carbon has clung onto prices at or around the €5.00 mark for three weeks indicating a reasonably balanced and consolidating market,” said Redshaw Advisors.
However, they added that mild weather seen across Europe next week could weigh on prices, as could industrials in Spain and Italy, which had not yet received their free allocations for 2016 as of last Thursday, should some choose to sell upon receipt.
“Perhaps Spain and Italy will make the difference but anecdotal evidence suggests otherwise, we aren’t seeing long queues of sellers waiting for allocation in those regions,” Redshaw Advisors added in an emailed note.
“With several significant shorts in the market yet to buy multi-millions of EUAs before Apr. 30 as well as the multitude of smaller compliance buyers, EUA price support seems set to continue.”
Earlier on Monday, a group of 25 EU member states sold 3.425 million spot EUAs for €4.95 each, in an auction that cleared in line with the secondary market.
The sale attracted 24 participants who collectively submitted bids worth a total 8.7 million units, which was the most since Feb. 23.
Meanwhile, front-year CERs followed EUAs higher, managing to break out of their trend of settling at €0.35. The futures added 2 cents to end at €0.37, the highest settlement recorded since Feb. 16.
By Mike Szabo – mike@carbon-pulse.com
