The most recent weekly report published by the ICE platform revealed that investment funds have expanded their net short positions (short term positions – long term positions) by 4,13 million allowances. This means that investors believe that prices will decrease in the near future.

Commitment of Traders (CoT) data shows that, as of last Friday, speculative traders have increased their short-term investments by 3,16 million allowances while reducing long investments by almost 1 million allowances.

Sursa: Commitment of Traders, chart by EMBA Power 

CoT is a useful source of information regarding the positions and behavior of the largest market players. Typically, “if speculative money goes one way, often prices will follow,” explained Luyue Tan, Carbon Analyst at Refinitiv. 

Still, over the summer, despite a record high in net short positions, suggesting a bearish view, the carbon prices went up due to short-squeeze, a phenomenon that appears when high net short positions are built, creating additional demand and pushing carbon prices up further.

“There has been evidence over the last two weeks that the relation has been normalizing, implying that the short-squeeze risks that drove up prices have been a fleeting phenomenon in this market” noted Luyue Tan. Carbon prices dropped almost 5% last week, moving in the same direction as dictated by the increasing net short positions.