EU carbon prices hit their highest levels for 10 sessions on Wednesday as traders bet on further near-term gains after prices moved out of a brief downward trend.

The benchmark Dec-15 EUA futures climbed as much as 7 cents on ICE to €8.32 shortly after the morning’s EUAA auction, slipping back to €8.28 by the close on healthy turnover of 13 million units.

Traders said Monday’s break above a key technical resistance level had given confidence to dealers to bet that prices would rise further, ending a period of uncertainty amid lower summer demand and curtailed auction volume throughout August.

“I think it’s part of the trend for a long time now for prices to rise gradually towards the end of the year. The fall back from €8.40 was just a slight correction,” one trader said.

Many analysts predict prices will end the year at or above €8.50 on tigher supply due to the ongoing backloading programme and as industrial companies grow more reluctant to sell their surplus units.

Yet carbon’s upward path halted in mid-August, peaking at €8.43 on Aug. 20 amid fears that the market would struggle to absorb September’s higher auction volumes.

The energy complex provided a slightly bullish signal for carbon on Wednesday, as German clean dark spreads ticked higher to claw back some of Tuesday’s losses.

STRONG EUAA DEMAND

Wednesday’s auction was a rare EUAA sale, with 25 EU nations selling 935,000 of the aviation-only compliance units at €7.94 each, some 28 cents below the Dec-15 EUA futures at 0900 GMT. That was the smallest discount seen in an EUAA auction since March, and well under the 31-cent average across the previous auctions this year.

The sale was 5.01 times oversubscribed – an all-time high for an EUAA auction.

“It’s because there wasn’t much on offer compared to earlier EUAA sales and it had been a while since the last one,” said the trader, referring to the previous sale on July 1.

There are 14 scheduled EUAA auctions in 2015.

This week’s scheduled auctions, clearing prices, distance to secondary spot EUA market, and bid-to-cover ratios:

07/09/2015          EU          2,918,000             €8.02   +€0.01             2.85
08/09/2015          EU          2.918,000             €8.09   +€0.01             2.47
09/09/2015          EU          935,000 EUAAs  €7.94   -€0.25              5.01
10/09/2015          EU          2,918,000
11/09/2015          DE          3,198,000

By Ben Garside – ben@carbon-pulse.com