The European carbon market traded bearishly on Tuesday morning, reaching an intra-day low of €77,90 only to change direction in the afternoon to close the day at €80,27, the highest settlement since December 2023.

Once again, the EUAs were tracking the upward trend on the gas market with TTF front month closing the session with an impressive 4,5% daily gain, despite an initial bearish opening to the day.  The late development was the result of “a combination of US LNG terminals closing due to forecast bad weather and Germany reviewing its regulatory framework in relation to refilling gas storage facilities ahead of next winter,” according to consultancy firm Auxillione. 

The most recent report published by ICE platform this morning revealed that investment funds have increased their net long holdings (long positions – short positions) to a record 42 million allowances as of 17 January. 

At the end of last week, long positions reached an impresive 79,3 million allowances, rising 10,7 million allowances compared to the previous week, while short positions declined by 2,3 million allowances to a total of 37,2 million allowances. 

These holdings suggest that investors strongly believe that carbon prices will increase, a bullish signal for the EUA price.The sentiment reflected in the most recent report by ICE is confirmed by trading data. The EUAs rose in all five trading sessions during last week, ending once again with a 6% weekly rise.

However, net-long speculative positions excessively high could lead to long unwinding, a market phenomenon where investors sell stocks they previously bought putting a downward pressure on prices. “Funds have added so much length now, there may not be much room for more buying” writes carbon analyst Yan Qin in a note this morning.