Quarterly options’ expiry triggered another sell-off in the carbon market

The European power spot remained once again at the same level yesterday as forecasts of stronger solar generation and weaker demand offset the higher gas prices. The day-ahead prices hence averaged 239.65€/MWh in Germany, France, Belgium and the Netherlands, +3.65€/MWh day-on-day.

The carbon prices plummeted by 5% yesterday afternoon following the quarterly options’ expiry as many participants receiving Dec.22 EUAs from exercised in-the-money calls immediately sold them while traders with positions not exercised could sell their hedges. The large prices’ fall was also attributed to the market’s low liquidity, with even low volumes proposed able to trigger noticeable moves. The EUA Dec.22 eventually closed the day at 76.60€/t, -4.07€/t from Tuesday’s settlement. Prices are rebounding this morning, but the sell-off might resumed this afternoon when the US markets open.

In the meantime, the power forward prices tracked the sudden rise of gas contracts after Putin announced its intention to charge the gas deliveries to “unfriendly countries” in rubles, triggering another wave of panic buying despite still unclear effects on the market.