EU Market: EU carbon holds above €8 as analysts eye further gains

Published 17:42 on July 27, 2015  /  Last updated at 15:09 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

EU carbon prices ended flat on Monday as bullish sentiment driven by an upcoming dip in auction supply offset an oil-led slump in energy prices.

EU carbon prices ended flat on Monday as bullish sentiment driven by an upcoming dip in auction supply offset an oil-led slump in energy prices.

Dec-15 EUA futures closed level at €8.02 on thin volume of around 6.5 million units.

The benchmark carbon contract briefly dipped to as low as €7.98 in the middle of the day having earlier hit a peak of €8.08, still below the 2.5-year high of €8.15 hit last Thursday.

The EU sold 2.9 million spot EUAs for €7.98 earlier in the day, some 3 cents below secondary market levels, in a sale that was 3.2 times oversubscribed.

There are five auctions selling 14.8 million in total this week, including one by Poland on Wednesday.

Weekly auction volume is cut by more than half in August compared to July to reflect weaker summer demand. The first week of August will see 7.54 million spot allowances across five auctions.

Market watchers generally predicted further gains based on this coming dearth of auction supply, but with some caveats.

“The price is psychologically well supported by the reduced auction volumes in August, but there might be some traders closing their long positions before leaving their desks for holidays and before further political announcements about the EU ETS in September,” said Bernadette Papp, an analyst at brokers Vertis, in a weekly blog post.

Traders Redshaw Advisors pointed out that August has historically been the most bullish month over the past few years due to the reduced auction volume.

“With €8 now likely to turn into a support level for carbon prices, further gains are possible,” they said in a weekly note to clients.

Analysts at Thomson Reuters Point Carbon agreed and predicted a trading range this week of €8.00-8.35.

Energy Aspects were more bearish, predicting a €7.75-8.15 trading range as potential buyers leave their desks and reduce market liquidity.

The Dec-15 EUA’s Relative Strength Index (RSI) was down to 66 today, off the 70-mark briefly touched last Thursday that can indicate when a commodity is overbought.

Meanwhile, Brent crude oil fell 84 cents to $53.78/bbl, its lowest in almost four months, on fears about the Chinese economy and growing signs Iraq and other Gulf producers are ramping up output.

Next-year German power prices were down 18 cents at €31.90/MWh, though profitability for coal-burning utilities was bolstered by a $0.15 drop in coal prices and a 1% gain for the euro against the dollar.

Front-year CER prices gained 3 cents to close at a two-month high of 46 cents with volume along the CER futures curve on ICE strong at 970,000 units traded.

The rise came after a UN draft text late Friday included the possibility that CERs could be used under a post-2020 global climate treaty, though the text itself referred to using credits from an “enhanced CDM”.

By Ben Garside – ben@carbon-pulse.com

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