Carbon Weekly Newsletter

This newsletter was published 13.1.2021, 19:38 pm CEST time.

EUAs posted another all-time high as gas spiked. Extremely cold winter in Asia has lifted spot LNG prices to highest in a decade. Europe weather forecasts have not been that extreme, but markets reacted in the same manner, pushing European gas prices up at the front of the curve. Price increase was so severe that coal-fired power plants became more profitable, on paper, over gas-fired. However, prices have started to stabilize today and it is likely that the move will not continue at the same pace. EUAs dipped slightly as well, however, prices might bounce from support soon as supply side is very limited and coal hedging needs more EUAs than gas to generate equivalent amount of power. There are 11 days without auction supply still and it will be difficult for the market to correct down before that. Options market have been very active since the start of the year. Put open interest on all strikes and maturities has increased by almost 20 million EUAs while call have increased by around 7 million EUAs. Increasing option interest signals potential increase in volatility. Prices may thus have larger intraday swings and with downside below 30 EUR/EUA very well protected we might see new all-time highs before the end of the month.

German power prices are up 0.50 EUR/MWh since last week, with the front year contract trading at 50.50 EUR/MWh. API2 coal prices are up by 4.55 USD since last week, with the Cal22 contract trading at 73.25 USD/tonne. EUR/USD is down by 160 points since last week and is currently trading at 1.2160.

Price development of EUA Dec2021 futures contract

 

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