EU Carbon Prices Rally as Energy Market Rebounds
In a surprising turn of events, European Union Allowances (EUAs) broke above the EUR 21/t threshold for the first time in three weeks, driven by the ongoing recovery of energy prices. The Dec 20 EUA contract, considered the benchmark, traded 4.2% higher at EUR 21.26/t on Ice Futures.
Carbon prices have experienced a remarkable surge of 49% since hitting a 21-month low of EUR 14.34/t just over two weeks ago. This unexpected recovery has left many industry insiders astounded, as there has been minimal improvement in the overall macroeconomic outlook.
Yan Qin of Refinitiv highlighted the persistent rally in EUAs, despite some believing it to be excessive. Speculation arose that carbon prices might be aiming to bridge the “gap” in prices that occurred between March 13, when the market reached a low of EUR 21.75/t, and March 14, when prices opened at an intraday high of EUR 21.50/t.
Traders were taken aback by the fact that carbon prices are now only EUR 1.50 short of pre-pandemic levels, considering the unprecedented global situation. The recent gains are attributed to a combination of factors, including short-covering, stronger energy prices, compliance buying ahead of the April deadline, and reduced auction supply for the next two weeks, according to Tom Lord of Redshaw Advisors.
Optimism has also emerged due to the slowdown in the rate of COVID-19 infections across various European countries, contributing to a more positive economic sentiment overall.
