This newsletter was published 5.4.2023 at 16:54pm CEST

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

EUAs rose significantly during the past trading week after creating local bottom just below 87 EUR per tonne. Late compliance buying, coupled with relatively low power production from renewables, has affected the market that offers limited supply and subsequently caused a rally of more than 10 EUR. The rally offered no major pullbacks and price has been closing higher almost every day. Another reason contributing to bullish tendencies could also be unexpected oil production cut by OPEC+. The output is reported to be lower by 1.16 million barrels per day and that might be more than sufficient to stabilise downtrend of crude, which is at the time trading north of 80 USD for May futures on NYMEX. Dynamics on daily EUA auctions also shifted from bearish to more bullish, since four in a row cleared premium to secondary market. Despite high EUA prices, cost of carry did not follow the relative change. Reasons could be stabilisation of long-term bond yields and outlook by some traders, that interest rate hikes could soon be topping, despite being much lower than inflation. Changes in interest rates have caused issues to some financial institutions. Central banks have in some cases stepped in as a lender of last resort and expanded their balance sheets to ensure stability of financial markets. Currently they might be facing an unfavourable trade-off between inflationary monetary policies or causing distress in the markets. Other markets in European energy complex went higher as well, especially front year German power futures, which breached 160 EUR/MWh in earlier this month.

German power prices are up by 10.15 EUR since last week, with the front year contract trading at 148.65 EUR/MWh. API2 coal prices are up by 9.00 USD since last week, with the Cal24 contract trading at 147.00 USD/tonne. EUR/USD is up by 90 points since last week and is currently trading 1.0940.

Price development of EUA Dec2023 futures contract