EU carbon prices raced above €8 in late trade on Tuesday after a strong auction result had earlier spurred speculative buying.

The Dec-15 EUA settled up 17 cents at €8.10 on ICE, having briefly hit €8.12 in a spurt in the final 20 minutes of the session that drew a fifth of the day’s 10 million turnover.

The benchmark carbon contract has now gained 4% over the past two sessions with the top trade just 3 cents of a 2.5-year high reached on July 23.

The Dec-15 EUA repeatedly climbed to the €8 mark – but no higher – until finally breaching the mark by 1430 GMT.

The EU’s sale of 1.459 million spot EUAs helped spur bullish sentiment, with the sale clearing 2 cents above market at €7.95 and more than 3.5 times oversubscribed.

It was the second sale in as many days that has cleared above secondary market levels in a week that will see just under 6 million on offer, the lowest auction volume this year.

A second trader said the reduced auction volume – which extends through August to account for muted holiday period demand – gave some confidence to those on the buy side that the price would be supported.

Yet, a second trader warned that turnover was still well below normal levels, making it easier to move the market in either direction.

“I guess speculators can move the market nicely on small volumes … I would only be confident of going long at around €7.40-7.64,” he said.

German clean dark spreads for 2017 and 2018 narrowed slightly as carbon rose and German power prices dipped.

But the spreads remained well above the €3 mark they had fallen below most of last week as coal followed oil into the red after China’s shock devaluation of the yuan made the dollar-denominated commodities more expensive for Chinese buyers.

The devaluation caused the euro to fall against the dollar but it recovered to near parity as news emerged that Greece had agreed terms with creditors on a multi-billion bailout.

Below are the auctions this week, distance to market, bid-to-cover ratios:

8/10/2015            EU          1,459,000             +€0.01 v market, btc 3.84

8/11/2015            EU          1,459,000             +€0.02 v market, btc 3.52

8/13/2015            EU          1,459,000

8/14/2015            DE           1,599,000

By Ben Garside – ben@carbon-pulse.com