European carbon hit a seven-day high on Tuesday but was dragged lower by sliding crude oil prices, rebuffing meatier utility profit margins.
Front-year EU Allowance futures on ICE settled down 7 cents at €5.03 after peaking at €5.23 shortly before 1300 GMT.
Carbon was boosted by a strong auction, which saw a group of 25 EU member states sell 3.425 million spot EUAs for €5.00 each, a cent above the secondary market.
The sale, which attracted 25 participants who submitted bids worth some 9.85 million units, was the fourth straight auction to clear at or above the secondary spot market – a trend some participants may see as bullish.
But the benchmark contract trailed oil prices lower through the rest of Tuesday afternoon, dipping below €5 several times before closing just above the psychologically-important technical level.
Volume was heavy at nearly 30 million units changing hands on the Dec-16s, or some 94% of the total 31.8 million EUAs that changed hands on ICE Tuesday.
“Today’s EUA chart is a carbon copy of Brent [crude],” one trader said.
“Carbon seems detached from its fundamentals, so traders have been seeking direction, and that direction for some reason has come from oil.”
After six straight days of gains leading to a new 2016 high, Brent fell by 3%, sinking back below $40/barrel.
Tuesday’s oil weakness came after investment bank Goldman Sachs said the latest rally was unsustainable and analysts predicted US inventories hit fresh record highs last week.
UTILITIES
European coal also followed oil lower but German power managed to hold up, helping to bolster clean dark spreads by 11-13% and sending them to levels not seen in two weeks.
Prior to Tuesday’s session, the EUA Dec-16s had posted a near 7% gain from late last week’s low of €4.77.
“The utilities are likely to have helped prop up the [carbon] market last week, with weather generally being supportive of more power demand,” said analyst Trevor Sikorski of London-based Energy Aspects.
“Such buying would likely be marginal, as it is only the increments above normal weather that might need to be covered, but it is likely to persist for much of this week, before some respite in temperatures will remove even that support.”
He added that he sees little reason for EUAs to move away from current levels, and that they should continue to hover around €5 for the next two weeks.
“A bunch of Doji candles says the ship was steadied last week, and we didn’t retest €4.62, the Feb. 11 low,” said Clive Lambert of technical analysts FuturesTechs.
“Marabuzo resistance at €5.15 is weighing for now and €5.49 is an even bigger hurdle, so we’re not out of the woods yet, not by a long stretch, but there are some signs of life from the bull camp.”
He added that he has identified €5.00 as the composite high value node (CHVN), or the most actively traded price over the last 20 days, which could make the level a more effective support.
By Mike Szabo – mike@carbon-pulse.com
