EU carbon prices jumped to an 11-week high on Thursday, boosted by a stronger energy complex that included massive gains in German power prices.
Front-year EU Allowance futures trading on ICE closed up 22 cents or 4% at €5.77, after rising as high as €5.79 in the final 10 minutes of trade.
Turnover on the benchmark contract was brisk at 17.7 million units, with a further 5.6 million done down the rest of the EUA futures curve.
One trader said it look like utilities buying carbon to hedge forward power generation and speculators either covering short positions or building long ones were behind the move.
He added that €5.85 appeared to be next technical resistance level for the Dec-16s, followed by €6.
“It looks like a big short squeeze on German power, so we’re following that higher (in carbon),” another trader said earlier.
Calendar-year German baseload power contracts on EEX soared by more than 70 cents/MWh to between €23.50-€24.15/MWh, translating into hefty daily gains of at least 3% across the board.
“[Power] has been rising steadily over the past few weeks along with coal and gas, so it seems like we’re exiting bearish mode,” the second trader added.
German power prices have been beaten down to record lows recently by reduced demand and ample renewable energy capacity.
Meanwhile, nearby UK gas contracts were up by at least 2 pence/therm on Thursday, or some 6%, while European coal for delivery next year was also more than 1.5% higher on the day, having risen by as much as 25% over the past two months.
Brent crude, to which EUAs have been closely correlated lately, was down around 40 cents at $45.40/barrel.
Calendar-year German clean dark spreads rose to their highest at least two weeks, mainly on the back of higher power prices.
Earlier in the day, a group of 25 EU member states sold 3.425 million spot EUAs for €5.58 each, in an auction that cleared a cent above the secondary market and attracted bids from 20 participants worth a total 8.6 million units.
EUA prices hardly reacted to the auction result, but shot up by 6 cents or around 1% after the previous 11-week high of €5.67 hit on Apr. 12 was breached shortly after 1200 GMT.
However, even with this week’s gains, EU carbon prices remain some 30% below where they were at the end of 2015.
By Mike Szabo – firstname.lastname@example.org