Europe’s benchmark carbon contract shed almost 3% in the week to Friday, with expectations of further downside next week.
The Dec 24 EUA contract settled at EUR 70.36/t last Friday but fell below the EUR 70/t level this week.
It settled at an average price of EUR 68.47/t from Monday to Thursday and was last seen trading down EUR 0.14 on the day at EUR 68.33/t.
Correlation between carbon and the benchmark Dutch TTF front-month gas contract had been “quite high” compared with last week, Luyue Tan, senior carbon analyst at LSEG, told Montel.
The TTF contract settled at EUR 31.11/t on Thursday, down almost 6% compared with last Friday.
“EUA prices are unlikely to move further away from our fair price expectation of EUR 65/t for the year and we anticipate the start of another gradual fall in prices in the coming week,” said Energy Aspects in a note.
The company estimated commodity trading advisors (CTAs) buying almost 11m tonnes of EUAs if prices move up by EUR 3/t, with a similar volume to be sold by CTAs if prices shed EUR 3/t.
Bearish fundamentals
Fundamentals remained bearish across the carbon and energy complex, with “plentiful supply and weak demand”, UK-based consultancy Redshaw Advisors said in a note.
“The potential disruptions from Hurricane Beryl to US LNG exports have diminished and EU gas storage levels have surpassed the psychological 80% mark, significantly reducing the risk of shortages as winter approaches,” it said.
However, carbon prices could find support from higher European temperatures that raise power demand for cooling purposes, Belektron analysts said in a note.
Temperatures in Western Europe next week would be between 1-3C above seasonal norms, while the heatwave in Southern Europe would last until the middle of the week, said SMHI meteorologist Torbjorn Simann on Thursday.
Auctions and free allowances
Just over 12m EUAs were scheduled to be auctioned this week, including 0.9m tonnes from an EU aviation allowances (EUAA) auction on Wednesday, which replaced the usual fortnightly Polish auction.
However, Tan said the lack of a Polish auction “did not inject any volatility”.
The Polish auction is due to return next Wednesday, with 2.3m tonnes scheduled to be auctioned.
Total auction volumes are expected to exceed 13.4m tonnes next week, according to EEX data.
Separately, the delayed publication of the status of the 2024 free carbon allowances by the European Commission is likely to occur before the end of July, a source close to the matter told Montel.
Other sources said Germany and the Netherlands submitted most of the EUAs for 2024 of any EU countries.
source: montelnews.com
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