According to investment banking giant Morgan Stanley, carbon prices in the European market could rise from current levels to €65 by the end of this year. The company has slashed its previous base-case forecast of €75 by more than 13% amid a more bearish outlook.

A prior Morgan Stanley bear case scenario saw EUAs as low as €53 this year, a level that matches the current price level.  However, the company has revised downwards this scenario as well to just €42, amid a 15% decline in carbon emissions expected this year compared to 2021 and increased auction supply between 2024-2026 due to RePowerEU sales, as explained by the bank.

“Carbon appeared oversold and offered an attractive entry point at present prices, said Morgan Stanley in a note seen by Montel News. The note also added that “the near-term oversupply would worsen a longer-term shortage that could prompt some market participants to buy into the market, supporting prices from this year.”

On Monday, the EUAs managed to post their second-largest daily gain this year while tracking smaller increases in gas prices. “At least for now, we consider the move a technical correction, as auction supply remains high, demand low and related markets subdued,” wrote energy trader Energi Danmark in a note this morning.

The European carbon market remains positively and significantly correlated with gas prices which ended on Monday with a modest increase. “The weak demand and high storage inventories outweighed cold weather forecasts and lower renewables output”, wrote Reuters yesterday.

According to data from Gas Infrastructure Europe (GIE), gas storage levels in Europe were on Sunday at 63,86% (56,35% in Romania), about 16% above their five-year average for this time of the year.