The European carbon market saw a short downtrend in early trading on Friday dropping briefly below  €67,50 for the first time in three weeks. However, the EUAs recovered later in the day and ended up closing with 1,4% daily increase, “reclaiming nearly all of the value it had lost during the week” , noted Carbon Pulse.

What was particularly noteworthy in Friday’s trading session was how carbon finally decoupled from the gas market, even though briefly. Gas has influenced carbon prices and in the past week, the correlation has been stronger than ever. However, on Friday, by contrast to the carbon market, gas prices ended the day with a small decline of 0,15% amid “milder weather outlook from mid-December,” as stated by Reuters.

Another key driver behind the downward trend for gas is Putin’s decision to cancel a decree published in March 2022 forcing buyers of Russian gas to pay through Gazprombank with rubbles. “But Russia late on Thursday relaxed rules on the use of foreign currency to pay for its gas, seemingly providing a “workaround” for buyers”, wrote Montel News.

The week started with losses for the carbon market, erasing all gains made on Friday with gas prices also dropping for a fifth day in a row. According to Bloomberg this morning, “while temperatures are expected to dip slightly in the coming days and wind speeds are seen subsiding, mild and windy conditions are forecast to return next week.”

However, a cold snap could complicate a situation already fraught with difficulty amid supply concerns. Withdrawals from gas storage are already happening faster than usual. According to Gas Infrastructure Europe data, as of 7 December, gas storage was 82,38% full, compared to 91,48% full a year ago. 

Traders could also start repositioning ahead of option expiry which is scheduled for 13 December. The biggest concentration of call options is located at strike price of €70 with 13,1 million tonnes while the biggest concentration of puts is located at €65 with 11,9 million tonnes.