(Montel) European carbon prices fell 8% on the week to Friday, weighed down by weak fundamentals and negative sentiment amid a bleak macroeconomic outlook.
The benchmark Dec 23 EUA contract was last seen down EUR 0.03 at EUR 82.96/t. This put the market on track to drop 8% on the week after five consecutive days of losses – with prices at their lowest since January.
“Everything is bearish for EUAs at the moment,” a trader said.
Bearish factors included mild weather and high levels of renewables generation, market participants said.
Weak gas prices could see fuel switching from coal and further reduce EUA demand from power production, they agreed.
“Plummeting gas prices are likely pushing coal and lignite power producers to unwind their hedges made last year,” the trader added.
Bleak data
“Bleak” data showing reduced energy consumption, dropping financial markets and the macro-economic situation in the US also weighed on carbon prices, the trader said.
The macroeconomic outlook was “grim” said Vertis carbon analyst Riham Wahba, due to banking turmoil in the US, drops in the equity market and stalling talks over raising the debt ceiling to avoid default, combined with European markets’ negative economic outlook.
Data from Germany yesterday showed that Europe’s biggest economy had entered recession, which “sends negative signals to the market”, she added.
There has also been a lack of buying appetite in the market despite the significant drop in prices this week.
The latest commitment of traders report shows net short positions reduced over the past two weeks, when they held the biggest net short position since this data started being collected in 2018.
This was evident in the downward price action, which “reflects this change in the psychology of investors and financial players in the market”, she added.
Bearish sentiment
“This week the price drop was significant,” she said, “and the next commitment of traders report could see an increase in short net positions by investment funds due to the magnitude of the movement.
“Every day was bearish this week… which underscores the bearish sentiment in the market at the moment.”
Technical signals indicated room remained for a greater fall in prices, analysts said.
“We cannot rule out a move towards the EUR 77/t level,” said Ingvild Sorhus, senior carbon analyst at Veyt.
However, auction volumes would be reduced next week due to a public holiday in many European countries on Monday, which would “lower supply [that] could provide some support”, she added.
“Everything is bearish for EUAs at the moment,” a trader said.
Bearish factors included mild weather and high levels of renewables generation, market participants said.
Weak gas prices could see fuel switching from coal and further reduce EUA demand from power production, they agreed.
“Plummeting gas prices are likely pushing coal and lignite power producers to unwind their hedges made last year,” the trader added.
Bleak data
“Bleak” data showing reduced energy consumption, dropping financial markets and the macro-economic situation in the US also weighed on carbon prices, the trader said.
The macroeconomic outlook was “grim” said Vertis carbon analyst Riham Wahba, due to banking turmoil in the US, drops in the equity market and stalling talks over raising the debt ceiling to avoid default, combined with European markets’ negative economic outlook.
Data from Germany yesterday showed that Europe’s biggest economy had entered recession, which “sends negative signals to the market”, she added.
There has also been a lack of buying appetite in the market despite the significant drop in prices this week.
The latest commitment of traders report shows net short positions reduced over the past two weeks, when they held the biggest net short position since this data started being collected in 2018.
This was evident in the downward price action, which “reflects this change in the psychology of investors and financial players in the market”, she added.
Bearish sentiment
“This week the price drop was significant,” she said, “and the next commitment of traders report could see an increase in short net positions by investment funds due to the magnitude of the movement.
“Every day was bearish this week… which underscores the bearish sentiment in the market at the moment.”
Technical signals indicated room remained for a greater fall in prices, analysts said.
“We cannot rule out a move towards the EUR 77/t level,” said Ingvild Sorhus, senior carbon analyst at Veyt.
However, auction volumes would be reduced next week due to a public holiday in many European countries on Monday, which would “lower supply [that] could provide some support”, she added.
