EUA Market: Bearish Trends and Short Squeezes

Unpacking Last Week's Turbulent EUA Market: From a Third-Low Settlement to Short Squeeze Speculations

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The European carbon allowances (EUA) market witnessed a tumultuous week, with prices for the benchmark Dec23 EUA contract closing at EUR 77.64, marking the third-lowest settlement of the year and a weekly decline of EUR 1.71 (2.2%). The latest CoT report revealed a 62% increase in investment funds' net short position, rising from 13.5 million mt to 22 million mt. This data fueled speculation of a short squeeze, indicating both bearish sentiment and the potential for a price spike due to short covering.

This morning, European carbon permit prices touched a fresh one-year low, mirroring a trend where traders further increased their short positions. Simultaneously, energy markets continued their recent decline, influenced by a subdued demand outlook amid unseasonably warm weather conditions and robust gas storage levels.

In this article, we delve into the intricate dynamics that shaped the market throughout last week, shedding light on factors driving these price movements.

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Daily Price Movement 💶

(Source: ICE)

Monday: A Gloomy Start The week commenced with EUAs sliding to a five-month low of EUR 78.48 by Monday afternoon. Attempts at a rally were short-lived, and the Dec23 contract settled 0.6% lower at EUR 78.72. Mild weather and bearish fundamentals took center stage, prompting selling pressure.