European carbon prices ended Friday’s session at €80.58, their strongest settlement in three weeks, posting a 4.4% weekly gain as the market consolidated after the sharp upside move seen earlier in the week.

The upward momentum was underpinned by optimism surrounding the signing of a ceasefire agreement between the US and Iran, which helped improve overall market sentiment. Additional support came from an intense heatwave across Western Europe, boosting power demand for cooling while simultaneously constraining nuclear generation in France due to higher river temperatures and cooling-water restrictions.

As Reuters reported last week, “French state-owned utility EDF warned on Thursday that three nuclear plants face production curbs next week because of high temperatures on the Rhône and Garonne rivers as France grapples with its heatwave this spring”.

Weather forecasts over the weekend offered little relief, reinforcing concerns over sustained pressure on the European power system. “We’re heading for, at the very least, several days of very, very ⁠hot weather. We don’t know when temperatures will start falling,” French Health Minister Stephanie Rist said on TV channel TF1, signalling that the heatwave and its impact on electricity demand and nuclear generation could persist into this week.

However, geopolitical risks returned to focus over the weekend after Iran announced that it had once again closed the Strait of Hormuz following Israeli attacks on Lebanon. The development raised fresh concerns over the security of energy supplies and maritime trade in the Gulf region, with market participants closely monitoring the risk of further escalation.

“Recent developments show that moving towards a more permanent deal will be challenging, with very real risks of a flare-up in hostilities during the 60-day ceasefire,” ING analysts said in a note on Monday.

While geopolitical developments and ongoing political uncertainty surrounding the future design of the EU ETS are likely to remain important drivers for the carbon market, the near-term outlook is expected to be shaped largely by summer weather conditions. Elevated temperatures are set to boost electricity demand for cooling while increasing the risk of reduced nuclear generation, particularly in France. This could lead to greater reliance on fossil-fuel-fired power plants and, in turn, stronger demand for carbon allowances.