EU carbon prices climbed to as high as €7.98 in early trade on Monday, the first session of a month that will see auction supply halved in a scheduled reduction to account for lower summer demand.

The benchmark Dec-15 EUA contract settled up 8 cents at €7.96 on ICE Futures Europe on modest turnover of 6.2 million units.

Overall EUA volumes may decline over the month as market participants take holiday and many power plants run maintenance, said Bernadette Papp, an analyst at brokers Vertis in a weekly blog post.

SUPPORT/RESISTANCE

She said that well-bid auctions this week could easily drive prices back above €8, with the first resistance at last week’s peak of €8.10. She put the nearest support level at the €7.85 weekly low hit last week.

Carbon dropped out of the month’s upward channel last Thursday, when speculators pushed prices below support at €8 to trigger stop-loss orders, but held firm on Friday as wider dark spreads lent support.

Technical analysts at energycharts.de pegged support at €7.90 but warned of the possibility of a further correction should prices dip below that this week.

“After all, the market in the last 3 weeks has increased by over 11%,” they said in an emailed note.

Analysts at Thomson Reuters Point Carbon were more bullish, expecting the lower auction volume to more than cancel out bearish sentiment from energy markets due to continued declines in oil prices.

“Despite the bearish sentiment provided by the energy complex, we see carbon consolidating, likely re-testing the €8/t level and provide a slightly bullish outlook for this week,” they said.

German clean dark spreads narrowed slightly on Monday as a weaker euro made even the falling dollar-denominated coal prices more expensive for EU utilities, giving a slightly bearish signal for carbon.

The euro lost ground as the Greek stock market plunged as it re-opened following a five-week suspension.

CERs RISE

Dec-15 CERs gained 2 cents in very thin trade on ICE to €0.46 as green group Sandbag proposed that the EU buy 1.6 billion international credits over 2021-2030 as part of a more ambitious ETS reforms.

FEWER AUCTION BIDDERS

Earlier in today’s session, the EU auction of 1.46 million spot EUAs cleared 1 cent below market at €7.92 with a bid-to-cover ratio of 2.5, below the year’s average of 3. Secondary prices were little changed following the sale.

The auction drew 13 bidders, well below the average of 17 this year, suggesting the market has adjusted downwards for the lower summer demand.

EU member states will sell 27 million EUAs in August, down from 63 million in July.

Below are the sales due this week:

8/3/2015              EU          1,459,000

8/4/2015              EU          1,459,000

8/5/2015              UK          1,564,500

8/6/2015              EU          1,459,000

8/7/2015              DE           1,599,000

By Ben Garside – ben@carbon-pulse.com