The European carbon market ended last week on a downward trend, with the EUA Dec’26 contract closing at €86.26/t. The decline came as a surprise given the sharp gains in natural gas prices, which had supported carbon allowances throughout the week.

However, the late-week weakness in carbon prices appeared to reflect broader European equity market sentiment rather than developments in the gas market. According to Reuters, European stocks suffered “their steepest weekly loss since early September, as tensions in France and higher oil prices dampened the optimism sparked by some strong corporate earnings.”

Nevertheless, the late-week pullback was not pronounced enough to erase the gains accumulated earlier in the week, with carbon prices still posting a 1% weekly increase. This was significantly more modest than the 7.2% surge in natural gas prices over the same period, suggesting a possible temporary weakening in the traditionally strong correlation between the two markets.

Meanwhile, the European gas market remains under pressure, as escalating geopolitical tensions and low European gas storage levels fuel concerns over supply security and continue to support higher prices.

The bullish momentum extended into Monday morning across both gas and carbon markets. The TTF front-month contract briefly surpassed €97/MWh for the first time since 2022, supported by updated weather forecasts pointing to colder temperatures. Carbon prices followed suit, climbing above €88/t for the first time in more than a week.

Colder weather has already prompted several EU countries to begin withdrawing gas from storage, adding to supply concerns ahead of the winter season. According to Gas Infrastructure Europe, EU gas storage facilities were 74.62% full as of October 25, significantly below the five-year average of approximately 86% for this time of year. This relatively low storage level leaves the market more exposed to potential demand increases as the heating season progresses.

Looking ahead, we expect carbon prices to remain caught between seasonal demand support and headwinds from weak economic data and uncertainty surrounding EU ETS reform, leaving the near-term outlook broadly balanced, albeit with a slight upward bias.