EU carbon dipped on Tuesday shortly after extending a three-year high and following three consecutive days of gains that left the benchmark contract in overbought territory.
The Dec-15 EUA contract settled down 5 cents at €8.61 after trading in a €8.55-8.70 range on fairly thin turnover of 10.7 million units. The intraday peak extended the previous session’s three-year high by three cents.
Activity was brisk further down the EUA futures curve, with 7.9 million changing hands on the Dec-16s, 2.2 million on the Dec-17s, and 2.3 million on the Dec-18s.
The front-year contract’s RSI hit the 70 mark on Monday, at which in instrument can be viewed as overbought, and traders said this had helped send prices lower as speculators took profits.
Carbon has risen 4.5% or 38 cents from trough-to-peak over the past week as speculators grew more confident that carbon was consolidating in a new range above €8.30.
“We really had quite a strong rally without a serious correction. I am targeting €8.40-€8.45 in order to be comfortable about going long again,” one trader said.
Analysts at Energy Aspects agreed that slight drop could be on the cards this week but don’t expect it to lead to a longer term downward trend.
“While a drop back below €8.50 is possible with higher auction volumes this week, we expect prices to start to stabilise in a higher range of €8.30-8.80 for most of the coming month,” they said in a weekly note on Tuesday.
Today’s slide came amid slightly bearish signals from the energy complex but despite strong auction demand.
The EU’s sale of 2.9 million spot EUAs cleared 1 cent above front-year futures prices when the bidding window closed at 1000 GMT, the third time in four sessions that government auctions have cleared at or above the benchmark secondary market contract.
German clean dark spreads dipped as lower carbon combined with higher coal prices and a weaker euro, signals that were only partially offset by slightly stronger power prices.
Meanwhile, front-year CERs ended 2 cents higher at €0.61 on no volume on ICE, the contract’s highest settlement in three weeks and representing an 8-cent premium over the Dec-16s.
The rest of the CER futures curve remains flat compared to the Dec-16s, leading Energy Aspects to say that “the softness in the curve suggests the sustained strength in the (front-end) is potentially due for a correction.”
By Ben Garside – ben@carbon-pulse.com
