EU Market: EUAs sink further as analysts sound bearish warnings

Published 18:54 on May 9, 2016  /  Last updated at 18:54 on May 9, 2016  /  EMEA, EU ETS  /  No Comments

EU carbon prices slipped to a two-week low on Monday as analysts warned of bearish pressure and a late sell-off in oil dragged down the energy complex.

EU carbon prices slipped to a two-week low on Monday as analysts warned of bearish pressure and a late sell-off in oil dragged down the energy complex.

The Dec-16 EUA contract settled down 16 cents at €5.70 on ICE, near the bottom of the day’s €5.69-6.07 range, on fairly healthy volume of 16.4 million units.

That follows last week’s 5.2% loss, which was enough to push carbon out of its recent upward trend and led analysts to today predict further falls as bullish sentiment wanes and auction supply jumps.

Bernadett Papp at brokers Vertis pointed to bearish technical signals and increased supply but said losses might be limited due to healthy clean dark spreads tempting utilities to buy.

“Fundamentals with an auction supply of 14 million, and a weak energy complex might also weigh on the price,” she said in a weekly blog post.

She pegged the nearest support at the 30-day moving average of €5.66 and the nearest resistance at a Fibonacci retracement level of €6.13, followed by last week’s peak of €6.49.

Meanwhile, Libusa Reveszova of brokers Virtuse had a neutral outlook but said the expected warm and windy weather could cause further weakening because the power price would come under pressure and dampen utilities’ incentive to buy carbon.

“We expect the Dec-16 contract to continue to test the downside this week, as the technical outlook is bearish after Friday’s candle broke through several technical levels,” added Thomson Reuters Point Carbon analysts.

They also warned that political debate around post-2020 reforms is intensifying and could add to the price volatility.

And in a weekly note to clients earlier on Monday, traders Redshaw Advisors said a close near to today’s final level “will likely signal more falls for carbon as the short side speculators collectively gain confidence and target first €5.50, then €5.00.”

WEAK AUCTION, OIL-LED ENERGY SLIDE

Prices rose above €6 ahead of the EU spot auction close at 0900 GMT, but slipped back again after host EEX announced the sale had cleared six cents below the secondary market at €5.96, with below-average bid coverage of 1.85.

Following last week’s curtailed sale calendar due to public holidays, auction supply climbs by almost a third this week to 13.77 million, with an additional 683,500 EUAAs being sold by the EU on Wednesday. That level of EUA sales is roughly maintained until mid-June.

Brent crude oil reversed an early rally on Monday to fall 3% as traders shrugged off the supply-curbing impact of Canada’s wildfire outages amid reports of a large US inventory build and as traders considered the implications of the ousting of Saudi Arabia’s long-serving oil minister over the weekend.

The afternoon sell-off dragged down other energy commodities, with calendar 2017 German power prices down 1.9% at €24.00/MWh on EEX.

But the effect was more muted on calendar 2018 and 2019 German clean dark spreads, which ticked only slightly lower from three-month highs on Friday as lower German power was almost match by the drops in coal and carbon.

By Ben Garside – ben@carbon-pulse.com