EUA's Rollercoaster Week: Short Squeezes, LNG Strikes, and Bearish Tides

Amidst a Sea of Volatility, EUA Markets Navigate Short Squeezes, LNG Disruptions, and Evolving Auction Dynamics.

Price Movements: A Tale of Ups and Downs

After a bumpy seven-day skid, the EUA Dec23 contract found footing on Monday, inching up 13 cents to EUR 81.65. The catalyst? A jolt in natural gas prices, spurred by unexpected extended strikes at Chevron's two LNG facilities.

Yet, the optimism was short-lived. Sellers were out in force on Tuesday, pushing the Dec23 down to EUR 81.16, before the daily auction breathed some life into the market. As volumes surged, prices scaled up, reaching a high of EUR 82.41. But the gains weren't to last. By day's end, Dec23 settled at EUR 81.08 after flirting with a three-month trough of EUR 80.98.

Wednesday then flipped the script. In a crescendo of activity, the CoT report unveiled a staggering net short position of 20.3 million EUAs, the second highest on record. Trading momentum swelled. Propelled both by the CoT revelation and a 6% rise in the October TTF contract, the Dec23 swung from a low of EUR 80.57 to a high of EUR 83.88.

The following days proved more sedate. Thursday's EUAs held steady, with the Dec23 inching up to EUR 83.12. Friday witnessed a morning rally, the Dec23 cresting at EUR 84.09, only to retreat by day's end to close the week at EUR 82.31.

Driving the Market: A Blend of Shorts, Auctions, and Strikes

At the heart of this tumult was the CoT. Memories of June's record net short position—25 million EUAs and the subsequent surge from EUR 78 to EUR 96—loomed large. The phenomenon, coined a 'short squeeze', had funds scrambling to repurchase contracts. Fast forward to this week, and the echoes were palpable as the CoT report pointed to a 20.3 million EUA short position.

Auction activity was in full swing, too, with volumes doubling to 14 million, a steep rise from August's paltry 4 million.

But another external factor made waves: the Chevron LNG strikes. Chevron's Australian facilities, responsible for over 5% of global LNG, are in the throes of ongoing strikes. The outcome? Potential spikes in EU gas prices.

Adding to the equation was Germany's fluctuating Clean Dark Spread (CDS). Contracting through the week, it hinted at bearish winds as coal, paradoxically more environmentally taxing, proved more profitable than gas.

Peering Ahead: Bearish Tides and Shrinking Auctions

While the short squeeze and Australian LNG strikes could tilt the scales upwards, the underlying sentiment skews bearish—thanks in part to an anticipated drop in EU power emissions.

Further complicating matters, auction volumes are poised to shrink in the upcoming week due to the fortnightly Polish auction recalibration.