EU carbon prices extended the previous session’s six-week high on Friday to ride afternoon gains in oil and notch a 4.6% weekly gain.
The Dec-16 EUAs hit an intraday peak of €5.46, just a few cents shy of technical resistance identified around €5.49.
The benchmark contract eventually settled up 14 cents at €5.42 on ICE, though turnover was modest at 9.5 million.
More than a third of that came in the hour following 1430 GMT, when the Dec-16s broke the €5.35-37 level that it had bumped against all week.
The move was sparked by a jump in oil prices on the back of US data showing the country’s output has slid for the tenth time in 11 weeks and that crude stockpiles had fallen.
Front-month Brent crude was up around 6% amid an already nervous oil market looking ahead to an Apr. 17 meeting of key producers to discuss a freeze in output.
The crude spike helped boost other key energy markets, but this translated into a bearish signal for carbon by narrowing German clean darks.
The spreads fell as both carbon and coal eclipsed rises in German baseload power, taking the measure of profitability to a one-week low on both the calendar 2018 and 2019 vintages.
EUA trading was generally steady around the auctions this week, with the exception of Wednesday’s UK sale, when prices jolted 7 cents lower after it emerged that the sale had only barely sold out.
The UK auction hosted on ICE cleared 10 cents below the secondary spot market, the largest discount seen in an EUA auction in more than a year.
Bid coverage of 1.19 was also the lowest seen since July 2013. Every single EUA auction has sold out since three were cancelled in Q1-2013.
EEX-hosted government sales over the rest of the week, however, were far more stable and had bid coverage close to the year-to-date average of 2.18.
This suggests that the lower bidding in the UK sale might be a trend isolated to ICE, rather than waning demand due as lower yields for the EUA carry trade.
Next week, EUA auction supply drops by a fifth to 13.8 million, as Wednesday’s sale is replaced by a German sale of 683,000 EUAAs.
Below are this past week’s EUA auction results, featuring the clearing price, distance to secondary spot market price on ICE at the time the bidding window closed, and bid-to-cover ratio:
| 04/04/2016 | EU | 3,425,000 | €5.08 | -0.05 | 1.81 |
| 05/04/2016 | EU | 3,425,000 | €5.26 | +0.02 | 2.38 |
| 06/04/2016 | UK | 3,489,500 | €5.24 | -0.10 | 1.19 |
| 07/04/2016 | EU | 3,425,000 | €5.23 | -0.03 | 2.25 |
| 08/04/2016 | DE | 3,495,000 | €5.23 | -0.02 | 2.23 |
And next week’s scheduled EUA sales:
| 11/04/2016 | EU | 3,425,000 |
| 12/04/2016 | EU | 3,425,000 |
| 13/04/2016 | DE | 857,500 (EUAAs) |
| 14/04/2016 | EU | 3,425,000 |
| 15/04/2016 | DE | 3,495,000 |
| Implied EUA carry trade annual returns | German clean dark spreads | |||||||
| Dec-16 | Dec-17 | Dec-18 | Dec-19 | Cal Yr | Price | Wk chg | ||
| Spot | 0.265% | 0.544% | 0.738% | 0.940% | 2017 | €3.77/MWh | -0.25 | |
| Dec-16 | 0.738% | 0.918% | 1.098% | 2018 | €2.89/MWh | -0.20 | ||
| Dec-17 | 1.099% | 1.277% | 2019 | €2.75/MWh | -0.14 | |||
| Dec-18 | 1.449% | (based on 38% efficiency factor) | ||||||
| (does not include transaction costs) | ||||||||
By Ben Garside – ben@carbon-pulse.com
