A recent uptick California Carbon Allowance volumes is likely the product of stepped-up buying from the transportation fuels sector following May’s quarterly WCI auction, traders said.
Dec-15 CCA futures closed at $12.70 on ICE last week, rising 5 cents on volume of nearly 2 million tons, making Friday’s session the busiest of the year so far for the contract.
While the Dec-15s were steady on Monday on quieter volume, the Jun-15s – also unchanged at $12.55 – saw heavy volume of nearly 2.3 million, equivalent to almost half the contract’s existing open interest.
Despite a two-week flurry of increased activity in what has long been a staid market, traders were unconvinced the boost in trading foreshadowed more speculative activity or a meaningful uptrend in CCA prices.
“This just kind of goes in spurts after an auction,” said Anthony D’Agostino, director of emissions markets for RBC. “I don’t know if there is any rhyme or reason to it.”
D’Agostino noted that a number of new compliance buyers from the transportation sector participated in the most recent sale after staying out of the Q1 auction.
“Those participants are now probably rippling into the secondary market,” he added.
Inclusion of the transportation fuels sector in WCI at the beginning of 2015 boosted the number of allowances available to 73 million from 23 million last year.
Unlike participants from California’s power sector, transportation entities do not receive a free allocation from state regulators.
Traders say it’s still too early to tell how the behavior of transportation buyers will affect the secondary market, but do acknowledge that the relative weight of their obligations will have some impact.
“Logically it could make sense [that transportation buyers are boosting trading], given that they’re the bigger sector,” one trader said. “The market is three times bigger now, so it would make sense for the secondary market to reflect that.”
By Robert Mullin – firstname.lastname@example.org