EUAs cautiously inched up on positive conflict developments

The easing power demand, rising wind production and decreasing gas prices continued to pressure the power spot prices yesterday which averaged 240.80€/MWh in Germany, France, Belgium and the Netherlands, -26.41€/MWh day-on-day and -85.59€/MWh from last week.

The EUAs edged up by nearly 1% on Wednesday, supported by positive sentiment from the ongoing talks between Russian and Ukraine and by a decent auction result despite the heavy volumes, but failing once again to settle above the combined resistance of their 20 and 100-day moving average. The EUA Dec.22 closed the session at 78.16€/t, +0.73€/t from Tuesday’s settlement. 

Several market participants are pointing to the current lack of directional drivers in the carbon market, the upside being dampened by the absence of speculators while the downside is limited by the optimistic and improving view on the conflict outcome and some compliance demand ahead of the looming deadline to surrender allowances for the 2021 emissions. These two supports are however more than fragile, a sudden escalation of the conflict still being possible while the missing volumes of the late compliance entities should be limited by now with several operators taking advantage of the recent fall of prices to buy allowances at an attractive price. Nonetheless, the 80€/t strike calls’ open interest for the next quarter options remain significant, and without bearish news from the conflict the level could act as a target until the contracts’ delivery next week. This indicator could however have a weaker-than-usual reliability at the moment considering that non-compliance players (at least those still in the market) seem quiet for now.

Meanwhile, the power forward prices posted hefty losses along the curve yesterday, mirroring the gas market as the Russia-Ukraine negotiation heading toward a compromise eased the gas supply concerns of both markets.