The European carbon market resumed its upward trend on Tuesday, trading as high as €74,90, a level which was last seen in early January with high chances to fully offset this year’s decline in the nearest future.

Since the start of this month, carbon prices have gained an impressive 25% amid “speculative activity and bullish signals from the fuel markets” as stated by a leading energy trader in a note this morning.

However, the largest driving factor continues to be the gas market also trading at its highest in three months. “It’s all about gas. It seems the market is expecting prolonged conflicts and is worried about supply disruptions,” said Yan Qin, LSEG carbon analyst, quoted by Montel News.

Besides growing concerns regarding the escalation of the Israel-Iran conflict, the gas market also factored in the impact of unplanned outages affecting the Norwegian gas infrastructure as well as lower temperatures in some parts of Europe including Germany. 

While the tensions in the Middle East will continue to be watched closely by traders, analysts “have once again cut their outlook for EU carbon prices, slashing their near-term forecasts by 10-15% on a mix of weak demand and ample supply”, according to Carbon Pulse. This latest poll among analysts suggests that the most recent upward trend is not fundamentally justified.