The European carbon market edged down to a fresh one year low on Tuesday morning, continuing a downward trend that started on Monday. The EUAs Dec’23 closed yesterday’s session with a daily loss of €2,97, the biggest since mid June and extended losses in early trading on Tuesday dropping as low as €72,20.

The decline is somewhat surprising given the current cold spell spreading across Europe and the upcoming pause in auction supply due to winter holidays. According to market observers, the downward trend that started this week is favored by traders repositioning ahead of option expiry scheduled for 13 December.

As trading data shows, the largest strike for this expiry has now shifted to €70 with open interest of 16,4 million EUAs followed by €60 strike with 13,57 million EUAs, all of which are put options (options to sell).

 Another major concentration is centered around a strike price of €65 with around 8,2 million EUAs of put options. Being by far the most popular option, the €70 could be seen as a level of support for Dec ’23 in the run-up to options expiry.

Another reason for the current downward trend is the milder weather forecast. “Prices are weakening this morning, probably because of the upward revision of temperatures compared to Friday,” analysts at Engie EnergyScan said in a daily market note, referring to the gas markets. TTF prices dropped by almost 6% and continue to decline in early trading on Tuesday, proving bearish pressure for carbon prices as well.