After dropping briefly below €52 this week, the lowest level since July 2021, the European carbon market saw a slight rebound, managing at the end of Wednesday’s session to gain €1 since Monday’s settlement. However, the bearish sentiment that clouded the carbon market since the start of the year could gain steam yet again.

“It will be interesting to see if the current level just above 50 EUR/t was the lowest the market was able to go or if it is just taking a pause and will start testing 50 EUR/t again soon,” writes energy trader Energi Danmark this morning. While many analysts remain cautious about the prospect of significant further losses, veteran hedge fund manager Per Lekander, CEO of Clean Energy Transition is more straightforward.

In an interview for Bloomberg, Lekander said that the price of carbon permits is going way lower. “The fundamental demand of carbon in the near term is going to be extremely weak,” he said, adding that “combined with an increase in the supply of permits available at auction, carbon could slump as low as €35.” 

The most recent Commitment of Traders report published by the ICE platform on Wednesday for last week, showed that funds have slightly reduced their bets on falling carbon prices to 37,6 million allowances from 38,2 million allowances the prior week.

Investment funds positions 

Net short (short-long positions) = bets on falling carbon prices  

The gas market also experienced a short-lived rebound due to an unplanned outage at the offshore Aasta Hansteen field in Norway with the country’s exports dropping from a normal 341 mcm/day to 319,6 mcm/day on Wednesday. However, the downward trend in gas prices is also expected to resume.

Latest weather forecasts show colder temperatures over the next few days in north-west Europe, but still values should be warmer than normal for this time of the year, keeping demand low. Furthermore, storage gas levels are currently at a five-year seasonal high with EU’s reserves at 64,92% (Romania at 57,43%) according to data from Gas Infrastructure Europe available for February 20.