A January to Remember Amidst Rising Gas Prices and Geopolitical Tensions
A January of Dramatic Declines, Rising Gas Prices, and the Unfolding Impact of Geopolitical Tensions
January 2024 marked a significant turning point for the European Union Allowances (EUAs) as prices plummeted by an unprecedented 20%, recording the greatest month-on-month fall since March 2020 and the second worst January performance since 2014. This sharp decline was cushioned by rising gas prices, triggered by disruptions in the North Sea and Red Sea regions, which acted as a major price supporter last week, mitigating the downward pressure from bearish fundamentals.
Unseasonably warm temperatures across Central and Western Europe, coupled with full auction volumes, delivered a bearish signal to traders. The week saw auction volumes increase to 13.4 million mt from 11.1 million mt the week prior, with several auctions clearing at significant discounts. Such dynamics underscore the complex interplay of market forces shaping the EU carbon market.
The geopolitical landscape further complicates the scenario. Recent attacks in Yemen, with US and UK strikes on the Houthis, are poised to escalate tensions in the Middle East, potentially fueling further spikes in gas prices and subsequently, EUA prices in the forthcoming weeks. Despite the current downtrend, analysts consider buying historically cheap EU carbon allowances as one of the “great opportunities” of 2024, suggesting a nuanced market outlook that remains neutral.
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