EU carbon prices dropped below €5 on Thursday on the back of a sharp fall in oil prices amid turbulent financial markets rocked by ECB announcements.
The front-year EUA futures dropped 17 cents to €4.92, near bottom of the day’s €4.85-5.14 range.
This was on fairly heavy volume of 20.8 million, which was around three-quarters of the day’s 27.4 million EUA turnover.
The day’s bottom was a four-day low but was still a ways off from the contract’s 22-month low of €4.62 struck twice last month.
The Dec-16 EUAs fell sharply in the opening minutes, finding support around €5 for much of the session before another sharp fall around 1420 GMT, in a move that continued the recent trend of carbon tracking oil price movements.
Front-month Brent crude oil futures were down $1.10/barrel at $39.97 amid reports that an OPEC production freeze meeting was unlikely without Iran’s participation, undoing much of the previous session’s gains.
Earlier in the day the euro fell to a six-week low against the US dollar after the European Central Bank (ECB) announced greater-than-expected interest rate cuts.
But the currency then rallied to a three-week high after ECB President Mario Draghi said he did not anticipate more rate cuts.
The rate cut had little immediate bearing on the EUA futures curve, but could further flatten the already gently-sloped contango, damping the demand for carry trades booked on the back of government allowance auctions.
Today’s EU government auction extended the recent bullish trend, with the sale clearing 4 cents above market at €5.00 and with above-average bid coverage of 2.65.
That extends the run of government sales clearing at or above the secondary market to six sessions, bucking the usual pattern of clearing slightly below.
Additionally, only 10 of the 25 bidders were successful, suggesting more aggressive bidding by some participants.
Meanwhile, German clean dark spreads nudged higher on weaker carbon and coal and the stronger euro, far outweighing a dip in German power prices.
By Ben Garside – firstname.lastname@example.org