On Wednesday, the European carbon prices dropped briefly to their one year low of €74,80, a level last seen on 23 November 2022. What’s also notable is that such negative performance comes at a time known for its traditional rise in EUA prices due to increased heat demand and annual auction pause during the winter holidays.

The current downward trend is in clear contrast to the traditional pattern noticed for carbon trading in November. “It is the best month for the EUA’s to rise with average of around +13% over the last 6 years”, as stated by the Centre for Climate and Energy Analysis (CAKE).

Yesterday’s decline was widely attributed to weak auction demand. The sale on behalf of Poland closed at €74,84, below the secondary market at that time. Furthermore, the cover ratio was just 1,74, “below a 2:1 cover ratio that signifies healthy demand,” as noted by Montel News. The carbon market reacted promptly to the auction results, reversing an early upward trend.

Auction demand 

Meanwhile, the Commitment of Traders report (CoT) for last week showed that investment funds have reduced slightly their net short investment for the first time since early October. Still, net short positions remain close to record levels, continuing to “push the EUA market to annual lows,” as stated in a note by Redshaw Advisors.

Also notable is the fact that in yesterday’s trading, the rise in gas and coal prices went almost unnoticed. TTF front month increased by 1% due to “colder and less windy weather forecasts, which are expected to boost gas demand for heating over the coming weeks,” according to Energi Danmark. Coal prices also increased by nearly 2% amid supply concerns from both Columbia and South Africa. Still, “the uptrend on the fuel markets is not enough to prevent the losses,” wrote Energy Market describing yesterday’s trading on the carbon market.