Vertis – Expectations about and results of the trilogue negotiations about the reform of the EU ETS kept the price of the EUA Dec17 in motion last week.

The benchmark carbon contract opened with a 5 cents gap up from previous Friday’s settlement price on Monday. The weak energy mix and the uncertainty about the trilogue however pushed the price to a daily minimum of 6.83 euro, but the strong auction and confirmation of Mrs. Girling as ETS rapporteur reversed the price that hit a daily maximum at 7.07 euro. By the end of the day the negative effect of the energy mix proved stronger and the contract closed with a loss of 4 cents (-0.6%).

On Tuesday, the EUA Dec17 opened with a 3 cents gap down and slipped to an intraday minimum at 6.89 euro. The price started increasing before noon, and started a real rally when it reached the 7.05 euro level. Although the rest of the energy mix remained calm, the EUA Dec17 hit a daily maximum at 7.32 euro, a level not seen since 29 September. In the last hour of trading, the price stabilized between 7.27 and 7.32 euro and closed at 7.39 euro, a gain of 43 cents (+6.2%).

On Wednesday, the EUA Dec17 started the day in a positive mood and with a 4 cents gap up. Higher power prices and optimism about the outcome of the trilogue meeting lifted the price to an intraday maximum at 7.54 euro, a level not seen since 14 September when the price reached 7.72 euro. In the last hour of trading, however, traders took their profit from the recent short rally. The price closed at 7.38 euro (the upper Bollinger band exactly), a marginal loss of 1 cent from Tuesday.

On the day of the fifth trilogue meeting, the benchmark carbon market had a volatile day. It opened with a 3 cents gap down, but was stable in the morning hours between 7.30 and 7.40 euro. Approximately at the time of the start of the trilogue meeting, the price started to fall sharply and hit a daily minimum at 7.20 euro. The reversal was even sharper, as the contract jumped almost 40 cents to hit a new October high at 7.59 euro. In the last two hours of trading the price lost 20 cents from its daily high and closed at 7.41 euro, a gain of 0.4% in a daily comparison. The rally on Tuesday and the jump on Thursday lifted the MACD above the signal curve, a positive sign.

The disappointment about Thursday’s trilogue not being the last one, pushed the price down in Friday’s opening already (16 cents gap down). The contract finished the day with a loss of 1.2%, but in a weekly comparison, the price gained almost 5% and the traded volume increased by almost 30% week on week.

After last week’s volatility because of the trilogue, we expect a more quiet week this time. Market participants are eager to know the date of the next trilogue about the reform of the EU ETS. Media sources reported last Friday that the date has been tentatively set for 8 November, meaning that it would take place during COP23, but there is still a chance to reach an agreement before the biggest international conference of climate change ends. According to the German environment ministry not more than one meeting is still necessary to agree on the different reform points.

On the other hand, deteriorating dark spread (the profitability of German coal fired power plants fell to 1.2 euro per megawatt hour from levels above 2 euro on expensive coal) and above the seasonal average temperatures might cap gains. Our base range for this week is 7.00 and 7.70 euro.

Source: Bloomberg, ICE