The last trading session has been interesting, to say the least. On Thursday, the EUAs hit a daily maximum of €68,95, a level not seen since the beginning of the year. By the end of the day, the price lost some ground but still managed to close with a daily gain of €5,15, the biggest since September 2022.

The first signals on Friday are bullish as well, with EUAs trading above €70. The rally lifted the price above the upper Bollinger band, indicating an overbought signal. According to Yan Qin, carbon analyst at LSEG, “It looks like gas is pulled up by carbon at the moment.”

The idea was shared by a carbon trader quoted by Montel News. “It has become impossible to trade EU gas without taking into account the EUA dynamics these days,” he said, adding “There is a big party on the emissions side”, referring to yesterday’s trading.

However, according to Energi Danmark, the main driver for the upward trend in both gas and carbon was the rising geopolitical tensions, “with Russia intensifying their attacks on the Ukrainian energy sector.” Furthermore, yesterday’s decision of the European Parliament to reduce Russian gas imports added to the upward pressure on prices.

The massive rebound above the €70 could also be tied to a short squeeze on the positions held by speculators. The recent Commitment of Traders report published on Wednesday containing data available for last week, showed that investment funds have increased their net short positions in EUAs for the third week in a row.

Source: Commitment of Traders, ICE

The document is seen as an analytical tool for traders providing valuable information on the market sentiment: net long positions are associated with bullish bets and vice versa.

However, there is a broad consensus among traders that such a huge concentration could send the carbon prices in the opposite direction due to a short squeeze. This is a phenomenon that appears when huge net short positions are built, creating additional demand, and pushing carbon prices up.