Carbon prices further decorrelated from the soaring fuels and power prices

The European power spot prices climbed above 400€/MWh for today, lifted by a combination of below-average temperatures, a wind shortage, a weak nuclear availability and surging gas prices. The day-ahead prices averaged 408.67€/MWh in Germany, France, Belgium and the Netherlands, +48.64€/MWh from Friday and a massive 184.47€/MWh from the previous week.

Despite an early (slight) recovery, the EUAs continued to fade on Friday as the escalating war in Ukraine and reports that the sanctions against Russia could include energy products strengthened the fears of gas supply disruption and industrial demand destruction. The EUA Dec.22 closed the session and the week at 65.10€/t, -2.25€/t day-on-day and -23.04 (-26%) from the previous week.

With only 36.10mt exchanged via the Dec.22 contract, the traded volumes were much lower than the nearly 79mt reached earlier this week during the historic crash of carbon prices, suggesting that the market is now facing uncertainties on which direction to take based on the conflict developments. Considering that following their massive liquidation to avoid exposure and raise cash the speculators should now have very limited positions and buying interest, the upside appears limited. The compliance players could find the current level of prices attractive since, despite the crisis, the carbon market remains structurally short, but participants seems to look only at the potential economic fall-out of the war and subsequently falling equities for now, and the carbon prices are posting further losses this morning. However, let’s not forget that the Dec.22 is strongly oversold, and any finding of a new source of coal able to make up for a potential halt of gas supply could induce a strong rebound.

Meanwhile, the power prices continued to post eye-watering gains on Friday, surging alongside the gas amid soaring supply concerns and panic buying.