EUA Dec18: The benchmark carbon contract gained more than 11%

Vertis – In a spectacular rally, the EUA Dec18 jumped to 8.85 euro last week. Daily auctions had strong results as some cleared at a premium to the secondary market, the cover ratios and the number of bidders were high.

Industrial installation that used their surplus in the past had to turn to the market as their free allocation decreases. German utilities were also hedging more actively as coalition negotiations make an old-new government of CDU and SPD likely, while the Greens will not have a role in defining the country’s climate policies.

The EUA Dec18 eased somewhat last Monday as declining power prices put bearish pressure on carbon with strong support levels limiting the downward move. The contract closed where it opened and lost 0.06 euro day-on-day. Trading was modest with 8.8 million.

The EUA Dec18 gained 3.2% on Tuesday and finished the day at 8.05 euro. This was the first time this year when the benchmark carbon contract closed above the 8 euro mark. In the morning, the price still opened in line with Monday’s settlement price. The price slipped shortly to a daily minimum at 7.77 euro, but hit a new 2018 high at 8.07 euro later during the day. The settlement price was close to the higher edge of the daily range. The traded volume of 16.5 million was almost the double of the volume traded on Monday.

On Wednesday, the EUA Dec18 expanded gains by further 13 cents. The contract opened with a 3 cents gap up, but fell to a daily minimum at 7.96 euro during the day. It recovered later to hit a daily high at 8.25 euro (almost a 2-years high). The price kept almost all its gains until the end of the day and finished 1.6% higher. The traded volume of 12.7 million allowances remained below Tuesday’s volume of 16.5 million.  The rally was enough to lift the MACD above the signal curve, a positive signal for the next days.

The carbon price hit a new 2-year high on Thursday again, at 8.55 euro. Despite some initial uncertainty (the price opened 3 cents below Wednesday’s settlement price), the benchmark carbon contract rallied during the day. The price settled at 8.49 euro, a gain of 31 cents.

On Friday, the benchmark contract remained unstoppable. After opening at Thursday’s closing levels, the EUA Dec18 increased on Friday the whole day long. In the afternoon, the price hit a daily maximum at 8.85 euro, a level last seen in December 2015. The contract remained strong until the market closed and finished at 8.76 euro, a gain of 27 cents or 3.6%. A total of 17.9 million allowances traded in the benchmark contract only, the highest of the week.

The rally lifted the price above the upper Bollinger band and the RSI reached 74, signalling that the price is overbought. Further gains might be therefore limited and we expect the price to consolidate between 8 and 9 euro this week.

Source: Bloomberg, ICE



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