The European carbon market dropped almost 3% on Monday and extended its downward trend on Tuesday morning to reach its lowest level in 22 months at €61,23. Yesterday’s decline is even more impressive considering the small gains posted by gas markets and could be linked, among others, to the weak auction results.

The sale for 3,1 million allowances on behalf of EU member states closed at €60,81, below the secondary market at that moment. The bid-to-cover ratio of 1,41 is by far the lowest this year and suggests limited demand.

Meanwhile, UK allowances are trading at an all-time low at around £31(€34). The current discount to EUAs is in clear contrast to developments recorded in 2022 when UKAs were trading at a premium of as much as €32.

 

Carbon prices could be supported in the coming days by colder weather forecasts. “Temperatures in northwest Europe are currently mild, limiting demand for heating, but they are set to drop below seasonal norms from February 12” warns Reuters this morning citing data from LSEG.

 

However, market participants remain confident that Europe will get through this winter “more comfortably than originally anticipated this year”, as stated by an ING analyst in a note on Monday. According to the latest data published by Gas Infrastructure Europe, gas storage is at 71,54% full (65,92% in Romania) well above the five-year average.