Traditionally, the European carbon allowances have performed well in December, especially based on the lack of auctions for the second half of the month and cold weather increasing energy demand for heating.

However, the second week of the month opened with losses on the European carbon market in response to the decline of both the gas and coal markets. The Dec’23 contract fell briefly to €66,26, its lowest level in 14 months before closing at €67,28 and posting a 2% daily decline.

 

“The market is positioning itself ahead of the upcoming options expiry,” states trading company Energi Danmark in a note this morning, referring to the due date on Wednesday. The largest strike is at €60 (put options) with over 13,24 million allowances, followed closely by strike at €80 (call options) with open interest slightly above 13 million allowances.

 

Furthermore, Dec’23 futures will have their last trading day next Monday when the last auction for this year is also scheduled. “However, after the options expire and with a longer auction break ahead, EUAs might find support later this month, said Ingvild Sorhus, EU carbon analyst quoted by Montel News.

 

Meanwhile, gas prices continue to decline “on expectations of higher temperatures and wind generation, as well as steady liquefied natural gas (LNG) and Norwegian pipeline supplies,” as stated by Reuters. TTF front month declined by 6,4% to reach its lowest level in two months.