• EUA prices have broken their all-time high of 65.77€/t on Nov.15th on a combination of rising gas prices, option trading and some positive sentiment from the COP26 amid a lack of sellers.
• Despite the current strong bullish trend, the rally could be temporary as it not fundamentally supported :
  • Higher gas prices should not trigger additional gas-to-coal switching as all gas power plants are already far behind coal in the merit order for this winter,
  • The bullish news supporting the gas market was on the supply side not demand,
  • No impact on the EU ETS is expected to result from the COP26’s “Glasgow Climate Pact”.
• A downward correction could hence be expected in the short term, although the nearing annual EUA auction break and the large call options’ open interest at 70 and 75€/t strike prices could quickly limit the downside.

Source : Data from Engie EGM and ICE

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