Energy Aspects nudges up EUA price forecast, but eyes flat months ahead

Published 13:55 on May 2, 2016  /  Last updated at 13:55 on May 2, 2016  /  EMEA, EU ETS  /  No Comments

Energy Aspects has raised its near-term EU carbon price forecasts following two downgrades earlier this year, predicting that EUAs will climb around 9% by the fourth quarter.

Energy Aspects has raised its near-term EU carbon price forecasts following two downgrades earlier this year, predicting that EUAs will climb around 9% by the fourth quarter.

In its monthly carbon market research report released Friday, the London-based analysis firm upped its average 2016 price estimates for front-year EUA futures to €6.50, from their previous forecast of €6.00 made in March.

“Prices should still be heading for a slow but steady recovery, likely trading between €6-7 in most of the coming months,” the analysts said.

The analysts expect prices in Q2 to average €6.50 in Q2, €7.00 in Q3, and €6.70 in Q4, up from their March projections of €5.50 for Q2 and €6.00 for Q3.

Benchmark EUA prices averaged €5.64 in Q1 after plummeting in the first six weeks of the year from €8.29 at the end of 2015.

They were trading at around €6.13 on ICE on Monday and have endured a volatile few weeks, with prices rallying as much as 50% to a three-month high of  €7.07 before easing back on profit-taking.

Amid a mix of bullish and bearish factors, Energy Aspects attributed much of the scale of the recent rise in carbon to speculators closing short positions and opening long ones, rather than any major shift in fundamentals.

“The key here is that, after this last week of April, the market is likely to be pretty flat overall. With outright shorts having now been burned, and after the outright longs were forced to exit earlier this year, traders are likely to be extremely cautious about what positions to take next,” they added.

“With prices in a state of flux, the direction of future moves is in question. We originally thought that 2016 would need to witness a draw from market-held inventories to balance and this is still a feature of our outlook, and, the reason our forecasts at the start of the year were supportive.”

The analysts left the rest of their estimates unchanged.  They expect prices to trade at around €6 for most of 2017 and to fall to an average of €5.25, as more coal-to-gas fuel switching cuts EUA demand from the power sector and auction volume is higher due to the end of the EU’s Backloading programme this year.

By Ben Garside – ben@carbon-pulse.com