The European carbon market has had a rough start in 2024, as January ended with the worst performance since 2016. Still, the EUAs closed the last session of the month on a positive note with a daily gain of €0,65. Nonetheless, the settlement of €64.16 was well below the €80,37 recorded on the final day of 2023.

In the last couple of days, carbon prices have managed to stabilize within a narrow range, increasing just 0,1% over last week. The trend was reflected in the Commitment of Traders (CoT) report which shows how large speculators are positioning across the carbon market.

As of last Friday, investment funds have increased their long-term positions by almost 1 million allowances while adding just 0,4 million allowances to their short exposure. This means that investors have reduced slightly their bets on falling carbon prices from 33,7 million allowances in the previous week to 33,1 million allowances as of last Friday.

Carbon prices could start to rebound amid colder weather as EUAs remain strongly correlated to gas prices. The latest weather forecast suggests February could be “the coldest month of winter” as stated by Netweather. Furthermore, current models anticipate a reduction in power generation from renewable sources.

However, we do not expect to see significant price rises either. Analysts polled by Reuters forecasts EUAs at €72,61 for the first quarter of this year, a cut by almost 13% from the previous survey published in October.

“We don’t see much in the way of price upside this year. Fundamentals are set to be unsupportive and investors are likely to hold net short positions again, keeping downward pressure on prices,” said Energy Aspects analyst Ben Lee quoted by Reuters.