European carbon prices drifted lower on Monday despite the market entering a period of lower auction volumes, as EUAs continued to seek direction from factors beyond crude oil prices.
The front-year futures on ICE settled down 12 cents at €4.88 on light volume of 7.8 million units, finishing at their lowest level since Feb. 24.
The Dec-16 price has been locked in a relatively narrow trading range of €4.77-5.23 since the end of February, after crashing by 40% in the first two months of the year.
“There is only so long the market will trade sideways. Eventually it will break one way or the other,” said Redshaw Advisors in a weekly note.
“The last few weeks has seen colder weather and compliance buying offsetting auctions and allocation selling. So how long does this status quo remain?”
Traders at the firm said buying by emitters covered by the EU ETS will wrap up by the end of April, “however the majority of larger buyers are likely to be done with purchases by mid- or end-March.”
“Furthermore, the move into spring is likely to quell additional utility demand in the absence of cold snaps. That said, so far there is little evidence of large-scale selling from industrial free allocations, and auction volumes reduce over the next three weeks due to the Easter holidays.”
EU governments will sell an average 13.8 million EUAs per week over the next three weeks, down some 20% from the mean 17.3 million allowances auctioned weekly since the last week of February.
A group of 25 member states on Monday sold 3.425 million spot EUAs for €4.92 each. The price cleared 2 cents below the secondary market, marking the first time since Poland’s Mar. 2 sale that auction participants were able to pick up carbon units at a discount.
“We provide a neutral outlook for EUA prices this week as the potential support from lower auction volumes weighing against unfavourable clean dark spread,” said analysts at Thomson Reuters Point Carbon.
European coal prices also fell on Monday, but the effect on German clean dark spreads was overpowered by tumbling German calendar-year baseload power prices, which lost as much as 2.6% on EEX. As a result, the dark spreads were pushed back towards recent multi-year lows.
Meanwhile, front-month Brent crude was down 94 cents at $39.45/barrel.
“Developments in oil prices will remain a main driver [of carbon]. Signals from technical indicators are also neutral,” the Point Carbon analysts added.
Redshaw Advisors added that the lack of obvious bullish drivers leaves open the possibility of further falls. “However, it is unlikely we see further large falls such as those experienced in the first two months of 2016,” they said.
“€5.00 seems like a happy place for now, with neither bulls nor bears willing to rock the boat,” added Clive Lambert of technical analysts FuturesTechs.
“To reiterate, we need to get through €5.49 to give a buy signal and suggest that a bottom might be in place. For now said signal is not forthcoming.”
By Mike Szabo – mike@carbon-pulse.com
