EU carbon price posted a 1% rise this week as a two-day pause in government auctions and the strongest buy signals for German utilities in almost a month encouraged limited buying.
The Dec-15 EUA settled one cent up on the day at €7.44 on ICE, 8 cents higher week-on-week.
The benchmark carbon contract closed near the middle of Friday’s narrow €7.40-7.50 trading range on modest volume of around 9 million units.
The solid performance defied the expectations of some traders who said they had predicted prices to fall as speculators looked to cash in their bullish bets from earlier in the week amid dim prospects for upcoming gains amid a bumper auction schedule.
“I was expecting a weak auction today but demand was strong and had also been expecting some drop because of Friday profit taking,” one said.
It hit and extended two-month highs over Tuesday to Thursday to reach a maximum of €7.59 before prices eased as traders looked to take profits ahead of a resumption of government auctions.
In the first sale since Tuesday, Germany’s auction of 3.2 million spot EUAs cleared one cent above market at €7.40 and was 2.7 times subscribed to take the week’s auction supply to 9 million.
Next week governments will hold auctions every day and are due to sell a total of 15 million, a near-maximum weekly volume for this year.
The wider energy market was also fairly stable. Front month Brent crude prices ticked 11 cents lower to $61.91/bbl as news that OPEC producers would maintain production levels was offset by better-than-expected US jobs data on Friday.
German clean dark spreads for calendar 2017 and 2018, key indicators of demand from German utilities looking to sell electricity forward, edged higher this week to hit their loftiest levels since early May.
But the spreads fell back slightly on Friday as the dollar strengthened on the US jobs data, pushing coal prices higher for German utilities.
Traders had also been preoccupied by Greece, whose leftist Prime Minister Alexis Tsipras roiled global financial markets on Friday by opting to backload IMF debt repayments despite reports that his government had the money to pay.
Amid speculation that Greece could leave the eurozone, Tsipras had been due to address the Greek parliament to explain his strategy but the session was delayed until after market close.
| Implied EUA carry trade annual returns | German clean dark spreads | |||||||
| Dec-15 | Dec-16 | Dec-17 | Dec-18 | Cal Yr | Price | Wk chg | ||
| Spot | 1.030% | 1.048% | 1.160% | 1.426% | 2016 | €4.20/MWh | +0.32 | |
| Dec-15 | 1.075% | 1.202% | 1.495% | 2017 | €4.00/MWh | +0.32 | ||
| Dec-16 | 1.330% | 1.719% | 2018 | €3.67/MWh | +0.49 | |||
| Dec-17 | 2.100% | (based on 36% eff. factor) | ||||||
| (does not include transaction costs) | ||||||||
By Ben Garside – ben@carbon-pulse.com
