Stronger sanctions on Russia drove EUAs down near 80€/t

The European power spot prices continued to rise yesterday, supported by high gas prices and forecasts of a wind shortage. The day-ahead prices averaged 255.45€/MWh in Germany, France, Belgium and the Netherlands, +31.25€/MWh day-on-day. The German discount to the French prices reduced to 28.61€/MWh, much lower than the 78.25€/MWh seen Monday of last week.

The EUAs plunged by 6.7% on Monday as the stronger sanctions on Russia announced over the weekend, the soaring energy prices and the potential economic fall-out of the conflict spurred fear of industrial demand destruction, while speculators likely trimmed further their length in the carbon market. With most of the losses posted at the market open, the benchmark contract managed to quickly rebound from the day’s low of 80.12€/t to eventually close at 82.21€/t, -5.93€/t from Friday’s settlement.

Yesterday’s session highlighted that the carbon market remains well supported at 80€/t and dip-buyers should prevent prices from going much lower at least in the short-term. The still-high open-interest of 80€/t-strike calls is also supporting this scenario. The fundamentals of the market, i.e. its increasing tightness, are not changed by the crisis and the current prices could be considered as attractive. However, the speculators are likely to wait for the crisis to pass before investing again in emissions, and without their buying interest the likelihood to reach 100€/t before the next quarterly options’ expiry in March fades significantly.

The power forward prices mirrored the gas market over the first session of the week, extending massive gains at the market open consequently to the new sanctions imposed by the West on Russia, but giving most of it back later in the day as participants realized that the Russian gas flows were not affected (so far) and the energy supply could be relatively spared by the conflict.