Monday, November 21, 2016

EUA Dec16: Low coal prices couldn't save the carbon price from losses last week

The chart of the EUA Dec16 showed a nice pattern of days with decreasing and decreasing prices this week. By the end of the week, however, the benchmark carbon contract lost 1.6%.
The price opened stable last Monday, but it turned lower when the components of the energy mix turned red. The price fell below the support level at 5.48 euro, and even tested the next support at 5.38 euro. The price closed with a loss of 4.6% or 26 cents.
The correction in the energy mix did not leave the carbon market untouched on Tuesday. The price opened with a three cents gap to Monday’s settlement price and despite falling to 5.42 euro, it didn’t close it and left 1 cent, which will work as a support. After climbing higher the whole day long, the price finished the day at 5.74 euro, a gain of 33 cents or 6%. 
The price moved in a wide range of 39 cents on Wednesday. The support at 5.48 euro worked well, but the price closed with a loss of more than 3%.
The afternoon rally in the energy mix and the strong auction pulled the EUA Dec16 higher on Thursday. The news about the Chinese government abolishing earlier limits on coal mining pushed coal prices lower which had a positive effect on the carbon market. After reaching and breaking the resistance level at 5.80 euro, some stop-loss orders might have been triggered and the price rallied to an intra-day high at 5.93 euro. By the end of the day the price managed to keep its gains and closed 35 cents above Wednesday’s settlement price.
After the rally on Thursday, the benchmark carbon contract turned lower on Friday again. Beside the falling German power prices, the weak auction result was an additional factor pushing the price lower to a closing price of 5.58 euro. 
Despite the volatility observed last week, the price seems to consolidate in October’s comfort zone between 5.40 and 6.10 euro. We keep this range as our base range for this week as well, emphasising that the upcoming events might increase the volatility of the price again: 
The UK is expected to provide some insight in the future of the country’s carbon tax on Wednesday. The OPEC should agree on the exact figures of the production cut 30 November. And the ENVI will vote about the amendments to the post-2020 reform proposal of the European Commission 8 December.

Source: Bloomberg L.P.

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