The European carbon market dropped to its lowest in six weeks on Friday before closing at €68,28 with a daily loss of €2,43, the biggest since April 22. Also notable was the trading volume of 39,78 million allowances, well above this year’s daily average of 30,08 million allowances.

“The market currently has eyes on the upcoming options expiry later this week, as the market positions itself ahead of this,” wrote Energi Danmark. Jun ’24 options expire on Wednesday with 9,376 mil call options sitting at €70 and could be one of the reasons for the recent strong support around this level. Another significant number of call options is at €65 with 9,13 mil.

Normally, trading data shows that volume shows large activity meaning option expiration. According to Yan Qin, carbon analyst at LSEG, quoted by Montel, “Maybe some call-option holders will take profit on Wednesday afternoon after the option expiry.” 

The correlation between the EUAs and gas continues to remain a dominant factor for the carbon market, although the price for allowances is dropping faster following the European Parliament election results. 

On Monday morning, both commodities are trading lower with the gas market declining at a faster pace amid improved flows from Norway. However, the gas market will continue to remain nervous due to several supply issues increasing prices globally.