EUAs dropped below 60€/t as the energy markets faced a record volatility

The European power spot prices spiked to record levels near 300€/MWh yesterday, driven up by the morning hefty surge of fuels prices and forecasts of wind shortage and stronger demand for today. The day-ahead prices averaged 301.48€/MWh in Germany, France, Belgium and the Netherlands, +118.94€/MWh day-on-day.

The EUAs collapsed by a massive 5.6€/t (-8.7%) on Wednesday as the record volatility faced by energy markets heavily increased the margin calls and forced traders to unwind their position on the carbon market to raise collateral and maintain their positions on the gas and power ones. The retreating gas prices in the afternoon following Putin’s announcement of potentially higher Russian supply to come is likely to have provided additional pressure on the emissions prices along with the benchmark carbon contract breaking below several technical supports throughout the day. The EUA Dec.21 contract eventually settled at 59.12€/t, -5.6€/t day-on-day, and seems to pursue its sharp bearish move this morning, although the contract is now near oversold level and the lower Bollinger band might provide some support to limit the losses.

Some market participants also attributed the large bearish move to the rumors of a political intervention from the European Commission in the EU ETS to ease the power prices and protect the consumers, but we see such action as highly unlikely and the EU environment commissioner V.Sinkevicius warned against it yesterday as it would “undermine trust in the market and create uncertainty among investors in low carbon technology”.

Meanwhile, the power curve prices observed an historically strong volatility yesterday, tracking the surging gas market and climbing to new records in the morning amid supply shortage concerns for this winter before deeply falling alongside the gas market in the afternoon, driven down by Putin’s statement and the large EUA sell-off.  The German power baseload cal+1 gained 11.50€/MWh in the morning to hit a new record at 179€/MWh, before dropping back by 47€/MWh in the afternoon.