Tuesday, May 2, 2017

EUA Dec17: New 2017 low hit in the last week of compliance

Although the price fell to a daily minimum of 4.57 euro Monday morning, the positive market mood after the French elections lifted the benchmark carbon contract above the 2017 low (4.56 euro) hit the Friday before. A good auction helped the price reaching 4.74 euro during the day, the level from which the price started declining on Friday. The intra-day gains, however, could not be kept amid falling power prices and the price closed the day with a marginal gain of 1.5%, at 4.64 euro.
Low power prices and the high supply of allowances pushed the price of the EUA Dec17 to a new four month low on Tuesday. The price was stable in the first half of the day, but bears invaded the trading floor in the afternoon and pushed the price down to 4.45 euro. Almost 19 million allowances traded in the benchmark contract, meaning that the negative sentiment was confirmed by a high volume. (The average daily volume in April was 11.6 million.) By the end of the day the benchmark carbon contract could only return to 4.50 euro. The sell-off pushed the RSI close to oversold territory, the MACD below the signal curve and the price below the lower Bollinger band.
The EUA Dec17 consolidated above the 2017 minimum on Wednesday. The price opened at 4.54 euro, 4 cents above Tuesday’s settlement price, but the gap was closed quickly when the price fell to an intraday minimum at 4.47 euro. The afternoon brought buyers to the market resulting in an intra-day maximum of 4.65 euro. This was the level, the sharp decline started from on Tuesday. The price then closed 11 cents higher, a gain of 2.4%. The traded volume of 12.8 million allowances was in line with the April average, but remained below Tuesday’s 19 million.
Despite opening 2 cents below Wednesday’s settlement price, the benchmark carbon consolidated between 4.56 and 4.65 euro during most of Thursday’s session. In the last minutes of trading, however, sellers pushed the price down again. The closing price of 4.55 euro represented a loss of 6 cents or 1.3% from Wednesday. The traded volume fell further and did not reach even the 10 million.
The traded range narrowed further on Friday, when the price moved between 4.53 and 4.60 euro. The price stabilized in the middle of the range, to close unchanged in a weekly comparison.
Positive and negative factors impacting the carbon market might be in balance this week.
On the negative side, after the compliance deadline it might turn more difficult for the auctioned allowances to be absorbed. The auctions of last week had already a weaker result than those in the first half of April.
Oil and gas prices were falling hand in hand in the last week of April. Market got sceptical if an extension of the agreement between OPEC and non-OPEC countries can deliver higher oil prices if the countries not participating in the agreement (for example the US and Libya) increase their production levels. Gas prices followed oil lower, while demand was also dented by forecasts about milder temperatures.
Investors might also chose staying at the sidelines of the market before the second (and final) round of the French presidential elections, as the support for Mr. Macron declined slightly below 60% in the second half of last week.
On the other hand, the price trades close to the lower edge of the March-April range, next to the lower Bollinger band. This might result in a consolidation or correction of the price this week.
All in all, we remain neutral for this week and expect the price to trade between 4.00 and 5.00 euro.


Source: Bloomberg, ICE




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