Analysis: EUA Prices Tumble, CCA's Uphold Bullish Momentum, RGGI's Experience Price Surge, WCA's Decline

The Global Carbon Markets are Exhibiting Varied Trends

The European Union Allowance (EUA) market

The European Union Allowance (EUA) market has recently observed a notable downturn, with the benchmark December 2023 (Dec23) future closing at EUR 68.63 on Friday. This represents a significant weekly drop of 5.3%, shedding EUR 3.86. Such a decline in EUA prices is closely tied to the sliding gas markets, marking the highest correlation with the front-month Title Transfer Facility (TTF) contract since June.

Weekly Price Movements: A Closer Look

• Monday's Market Reversal: EUAs began the week on a negative note, reversing any modest gains from the previous Friday and mirroring the declining gas market trends. The Dec23 contract hit a 13-month low, falling by 2.9% and settling at EUR 70.37.

• Tuesday's Continued Decline: The fall persisted on Tuesday, with the Dec23 EUAs dropping further by 2.5% to close at EUR 68.64. This was primarily attributed to falling gas prices and an uptick in short selling activities.

• Wednesday's CoT Report: The Commitment of Traders (CoT) report released on Wednesday revealed that funds had amplified their net short positions to 38.9 million mt. Despite an initial lack of reaction, selling pressure post-auction drove prices down to a new 13-month low.

• Thursday's Bullish Trend: Contrasting the week's earlier trend, Thursday saw a bullish turn with the benchmark contract gaining 1.2%, influenced by option hedging and short EUR 70 strikes.

• Friday's Bearish Close: The week concluded with a downturn on Friday, as the Dec23 EUA contract decreased by 1.5%, settling slightly lower than Tuesday's 13-month low.

Understanding the Drivers: Gas Prices and Market Sentiments

• Gas Market Influence: A pivotal driver of the EUA price drop has been the fluctuating gas prices. The correlation between EUAs and TTF futures reached a peak, highlighting the impact of gas market dynamics on EUA trends.

• Contributing Factors: High European gas storage levels, anticipated warmer temperatures, and increased renewable energy output have collectively reduced the demand for heat generation, further influencing gas prices.

• CoT Report Insights: The CoT report underscored the market's bearish sentiment, with investment funds elevating their net short positions, contributing to market selling pressures. Speculations are rife about whether these funds will cover their shorts or transition them into the Dec24 contract.

Looking Ahead: Anticipating Future Market Movements

• Auction Pause and Weather Patterns: The upcoming month-long auction break, starting from December 18, along with potential January cold snaps, could inject bullish sentiment into the market.

• Current Temperature Trends: A shift in weather patterns, particularly in regions like Germany, is expected to exhibit above-average temperatures, potentially impacting energy consumption and EUA demand.

• Auction Volume Adjustments: This week's auction volume is slated to be 11.26 million EUAs, a decrease from the previous week's 14.60 million, which may influence market dynamics.