European carbon jumped to a five-month high on Monday after eurozone leaders clinched a deal on a third bailout for debt-riddled Greece, with the benchmark EU Allowance finally breaking through a key technical resistance level that had dogged bulls over the past five weeks.
The front-month EUA contract settled up 18 cents at €7.80 after busting through €7.64 – a level the futures had bumped up against a number of times since the start of June.
The allowances then peaked at €7.82 in late afternoon trade, the highest price seen since Feb. 24, before slipping back slightly before the close.
Volume was heavy at more than 15 million units changing hands on the Dec-15 futures.
“The Greek deal, technicals and stronger German power helped us reach these levels. They were the perfect conditions for a rally,” one trader said.
A second technical resistance level was seen by some at €7.70, meaning the higher close puts the 2015 high of €7.90 in bulls’ crosshairs.
“€7.90 is next, but with specs coming in purely on the strength of technicals and doing most of the buying today, I don’t think we can sustain these heights and would be surprised if we don’t see a possible chop to the downside,” the trader said.
“That said, any decent move lower would probably be a good entry point rather than a short-selling opportunity.”
GREECE
Eurozone leaders at an emergency summit in Brussels reached a deal in the early hours of Monday morning to keep Greece in the monetary union in exchange for tough new austerity measures.
The news sent most global equity indices higher.
Calendar-year German power nudged up early on Monday but gained pace to end up around 0.7%, which some traders said was due to carbon’s strength.
UK gas was mixed while API2 coal for delivery next year lost a third of a dollar.
The euro surged to $1.119 against the dollar initially on the Greek news before falling back to $1.102 at the time of press.
These combined to slash some 3-to-4% off German calendar year clean dark spreads.
“The likelihood of Greece leaving the eurozone is now far lower than before, a fact which may provide some support to the carbon price,” analysts at Thomson Reuters Point Carbon wrote in a weekly note.
But markets appeared somewhat cautious over the Greek agreement, as creditors – some of whom were openly distrustful of Greece implementing the necessary “serious reforms” – refused to green light an immediate cash injection for the near-bankrupt country, whose banks will remain closed for now.
The plan includes greater austerity measures and the creation of a €50 billion asset fund by Greece, which would partly be used to recapitalise its banks.
The deal now faces sizeable hurdles, including the Greek parliament needing to ratify it within the next 48 hours, followed by votes by other eurozone member parliaments over whether to allow the programme to advance.
The tough deal also threatens the future of Greek Prime Minister Alexis Tsipras, whose capitulation to Germany and its other lenders ended the most recent 17-hour negotiating session, and his leftist government, which came to power on a staunch anti-austerity platform.
It may be a difficult pill for some of Greece’s lawmakers and beleaguered voters to swallow, with the country’s labour minister publicly denouncing the deal on television shortly after it was agreed and the majority of Greeks rejecting the creditors’ previous offerings in a referendum last weekend.
AUGUST’S AUCTION AUSTERITY
“With the Greek crisis cautiously heading for resolution, the main driver (for carbon) this week is the lower auction supply than the previous week and pre-hedging of August buys,” said Redshaw Advisors in a note to clients.
A group of 25 EU nations earlier on Monday sold 2.918 million spot EUAs for €7.64 each, in an auction that cleared at market and attracted total bids worth 7.1 million units.
European governments will unload a total 38.9 million more allowances through the rest of July, including 11.95 million units this week, making July the busiest month for EUA sales this year.
Auction volumes are then halved in August to adjust for muted summer demand.
“It is possible there is some additional demand in the market at present whilst the liquidity is still good. Backloading is forecast to create a ‘short’ year in 2015 to the tune of (around) 335 million tonnes and according to analysts the price is set to rise further by year-end,” Redshaw Advisors added.
Traders said they would also keep an eye on the European Commission’s Wednesday release of its plan for post-2020 reforms to the EU ETS, but they said the proposals were unlikely to move EUA prices significantly.
“With the ETS proposals, there could be some added longer term bullish signals, and we expect Dec-15 prices will trade in the €7.40 to €7.90 range over the week, with potentially more bias towards the upside,” said Trevor Sikorski, an analyst with Energy Aspects.
By Mike Szabo – mike@carbon-pulse.com
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