Extreme volatility is back in the carbon market

The European power spot prices remained mostly stable yesterday, torn between forecasts of increasing wind output and weaker demand and expectations of lower hydro and solar generation. The day-ahead prices averaged 161.79€/MWh in Germany, France, Belgium and the Netherlands, -2.51€/MWh day-on-day.

The EUAs soared by 5.9% yesterday as the surging gas prices due to the escalating situation in Ukraine continued to price the gas power plants out of merit for contracts with remaining gas-to-coal switch potential (summer 2023 and beyond) while the speculators are likely to have taken advantage of the situation to push the carbon prices towards 100€/t. Posting most of its large gains in the morning, the EUA Dec.22 contract hovered around 94.50€/t in the afternoon to eventually settled at 95.07€/t, +5.30€/t from Tuesday’s close.

Meanwhile, the power forward prices continued to track the spiking gas prices and extended massive gains along the curve.

The gas and power prices are sky rocketing this morning as Russia’s larger scale invasion is spurring supply concerns in the markets, despite the Russian gas flow being unaffected so far. On the other hand, the carbon prices collapsed by 7.4% at the market open to hit as low as 87.95€/t. As we warned yesterday, this sharp retracement is likely to be induced by traders offloading EUAs to generate cash in order to keep their position on the power and gas markets, the extreme volatility observed this morning raising significantly the margin calls requested. The Dec.22 has however already rebounded back to nearly 91€/t and the 5-day moving average could cap the losses in the short-term if the fuels and power markets’ volatility start to ease.