Investment funds continued to expand their net long positions in both the EU and UK carbon markets during the week ending Friday, 16 May, according to data from ICE’s Commitment of Traders report.

The data show that speculators slightly increased their long holdings in EU Allowances (EUAs) from 57.2 million to 57.7 million allowances. During the same period, they reduced their short positions by a significant 15%, from 48.1 million to 40.8 million allowances.

As a result, investment funds now hold a net long position of 16.8 million allowances — the highest level since early April — driven primarily by a sharp reduction in short positions, which are now at their lowest since mid-January. A rise in net longs, coupled with a substantial decline in short holdings, signals growing optimism among speculators regarding the outlook for EUAs.

Confidence appears even stronger in the UK Emissions Trading Scheme (UK ETS), where investment funds now hold a net long position of 19 million UK Allowances (UKAs) — the highest level on record. Compared to the previous week, funds maintained their short positions while increasing their long holdings by nearly 1 million.

According to Yan Qin, an analyst at ClearBlue Markets, “The record-high net length in UKAs is undoubtedly driven by anticipation of linkage news at the 19 May summit.”

However, some traders doubt that the upward momentum can be sustained, as the UK ETS continues to face an oversupply of allowances. “Funds won’t have deep enough pockets to support UKA prices,” warned a trader quoted by S&P Global.