EUAs collapsed by more than 16% as investors fled the market

Beside the German prices jumping by 37.38€/MWh due to the wind shortage forecasted for the country and soaring gas prices, the other NWE power spot prices remained rather stable yesterday. The day-ahead prices averaged 266.70€/MWh in Germany, France, Belgium and the Netherlands, +11.26€/MWh day-on-day. On the curve, the power prices continued to spike alongside the gas market, with the largest gains once again posted by the front of the curve.

The carbon market recorded its deepest daily fall ever on Tuesday as speculators massively unwound their positions to avoid exposure and cover for the soaring margin calls of the volatile fuels and power markets, while Russian holders sold their allowances by fear of seeing their access to the registry and markets removed. There were also rumors of compliance players selling part of their just-received free allowances, possibly anticipating the worst-case scenario which would be materialized by strong industrial demand destruction resulting from the sudden stop of Russian gas flows, sky-rocketing energy prices and economic fall-out of the conflict. The impressive sell-off drove the EUA Dec.22 as low as 66.00€/t, with the downward move accelerating in the afternoon as the benchmark contract broke several technical supports. The EUA Dec.22 eventually closed at 68.85€/t, -13.36€/t (-16.3%) from Monday’s settlement.

The bearish sentiment still prevails in the carbon market, although market participants are expecting the carbon prices’ fall to stop at one point when speculators and Russian holders will no longer have volumes to sell and compliance players (with enough cash) will take advantage of the low prices to build stocks for the upcoming years. The level reached by then is however still opened to debate. The technical indicators are all pointing to an oversold market, but traders are unlikely to follow these types of indicators in the current context. Nonetheless, some consolidation could be observed in the short-term but the potential of a strong rebound appears very limited as long as the investors are out of the market.