The most recent weekly report of the Commitment of Traders (CoT),  published by the ICE platform, revealed that investment funds have expanded their net short positions (short term positions – long term positions) to record high of 29,89 million allowances, up by nearly 8 million allowances compared to the previous report.

Figure shows that, in the week ending November 3, speculators have increased their short positions to 51,8 million allowances, “the largest total in two years,” as stated by Carbon Pulse. Meanwhile, funds have reduced their long investments by 4,55 million allowances.

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, despite a record high in net short positions, suggesting a bearish view, the carbon prices could go in the opposite direction due to short squeeze. This is a phenomenon that appears when huge net short positions are built, creating additional demand, and pushing carbon prices up further. 

The market’s immediate reaction to the report’s release proved that market players had this consideration in mind with EUAs bouncing slightly back from one year low below €75 to close the session with a €0,40 daily gain.