EU Market: Carbon propped up by stronger energy complex

Published 17:34 on April 19, 2016  /  Last updated at 17:34 on April 19, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices rose on Tuesday alongside a stronger energy complex, sending EU Allowances back towards their 10-week high of €5.67 touched a week earlier.

European carbon prices rose on Tuesday alongside a stronger energy complex, sending EU Allowances back towards their 10-week high of €5.67 touched a week earlier.

Front-year EUA futures on ICE ended 9 cents up at €5.56, near the top of their narrow €5.46-5.58 trading range for the day.

Volume on the benchmark contract was moderate at 12.2 million, with a further 3.9 million done down the rest of the ICE futures curve – the vast majority of which was transacted on the Dec-17s.

Crude oil prices, to which EUAs have been strongly correlated so far this year, rose by more than $1 a barrel to fully recover the losses posted over the past two sessions.  The gains came as production in Kuwait was reportedly halved due to an open-ended workers’ strike.

Meanwhile, calendar-year Germany baseload power prices added upwards of 1.5% each on EEX.

This, combined with firmer coal and a stronger euro, combined to push the German clean darks spreads up by 5.5% to 7.5%, bolstering demand for carbon.

However, more market observers joined the chorus warning about potential bearish pressures ahead.

“Power sector EUA demand is weak, with competitive gas generation, coal retirements and a downward revision in implied CO2 prices,” said analysts at New York-based PIRA Energy in a weekly client note.

“The bearish supply picture includes incoming 2016 free allocations, higher auction volumes, and little expectation of pre-2019 policy support. Excepting the possibility of greater alignment with rising oil prices, there is little upside price potential through summer 2016.”

According to an update published by the European Commission last week, more than 100 million EUAs may still be handed out by governments for 2016, including nearly 709 million by Italy, which had yet to begin to allocation its permits.

Earlier on Tuesday, a group of 25 EU member states sold 3.425 million spot EUAs for €5.47 each, in an auction that attracted 21 participants who collectively entered bids totalling 6.69 million units.

That equated to an oversubscription rate of 1.95, which was below the year-to-date average and the levels seen recently.

The UK will sell 3.49 million allowances in its fortnightly auction on Wednesday.

By Mike Szabo – mike@carbon-pulse.com

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