The European carbon market had an impressive rally at the start of the auction pause, peaking at €81,25 on the first day of this year’s trading. As expected, the EUAs started to retrace down amid the prospect of auctions resuming on Monday 15, according to the EEX calendar.

Following a decline of 5% in the first week of 2024 despite the cold snap expected for this week, carbon prices posted noticeable losses on Monday. Besides the anticipation of auction supply, the drop was also linked to a milder weather forecast over the weekend which led to massive losses in gas and coal markets.

In this context, the EUA Dec ’24 traded as low as €71,93, featuring a correction of almost €10 from the peak reached a week ago, before closing at €72,42 and posting a 5,15% daily loss. TTF front month fell by more than 8% with healthy supplies and easing tensions in the Middle East adding to the downside pressure.

We expect carbon prices to continue to take their cue from gas prices which in turn remain highly sensitive to any changes to weather conditions as a shift towards colder temperatures could quickly alter market dynamics.

Still, “the region’s mild weather until now has left supplies plentiful, making the current cold snap just a blip”, says Bloomberg referring to ample gas inventories. According to Gas Infrastructure Europe (GIE), EU storage facilities were 84,27% full on Sunday (80,75% full in Romania).

Inventories well above the seasonal five-year average of around 72% prompted analysts to expect Europe to end this winter comfortably. “Even if the chill holds for the rest of the season, Europe will still consume far less natural gas for heating than in a normal winter,” concluded Bloomberg.