This newsletter was published 25.10.2023 at 16:18pm CEST

The current prices on the European carbon market are as follows:

EUAs continue to exhibit a persistent downward trend, with December 2023 futures contracts hitting a three-week low at 79.75 EUR. This ongoing trend can be attributed to bearish market fundamentals and short selling by investment funds. In just a week, these funds have expanded their net short exposure from approximately 10 million tonnes to nearly 14 million tonnes. However, it is worth noting that the current CoT data reveals a much lower figure compared to three weeks ago when investment funds had built a net short exposure of over 22 million tonnes. Bearish market fundamentals have limited any short-term buying activity, as buyers are met with numerous willing sellers after any significant price rally. EUAs appear to have limited upside potential at the moment and might continue trading on a slow and steady downward trajectory. This slow and steady movement has persisted for several weeks, resulting in near-record low implied volatility. Despite these factors, the bearish thesis might be running out of time, as EUAs consistently find support at nearly every downward tick. The bearish sentiment has been prevalent since late August, and even with increased auction supply, prices have not stayed below 80 EUR for an extended period. This resilience could be interpreted as a rather bullish signal, particularly if market fundamentals shift in a positive direction before the winter. November and December have been historically bullish months for EUAs most of the time and one must consider this factor as well. Option activity for December expiry has also been gaining some momentum. The strike with the largest open interest, of more than 21 million allowances, remains at 70 EUR. However, the 80 EUR strike is not far behind, with an open interest of just over 20 million allowances.

German power prices are down by 4.10 EUR since last week, with the front year contract trading at 126.50 EUR/MWh. API2 coal prices are down by 10.75 USD since last week, with the Cal-24 contract trading at 127.00 USD/tonne. Front year gas prices are down by 1.180 EUR since last week, with the TTF Cal-24 trading at 53.920 EUR/MWh. EUR/USD is up by 40 points since last week and is currently trading 1.0580.

Price development of EUA Dec2023 futures contract