Sharp declines in European gas prices failed to weigh on the carbon market yesterday, with EU allowances showing surprising resilience despite the strong correlation between the two markets in recent sessions.

On the first trading day of the month, the benchmark EUA Dec’26 contract maintained its upward momentum, closing comfortably above the €90/t mark for the first time since mid-January. Trading activity was also notably strong, with around 29 million allowances changing hands, well above October’s average daily volume of 21.82 million allowances.

Also noteworthy, the auction of 2.8 million allowances cleared at €89.43/t, at a substantial premium to the secondary market. However, the cover ratio of 1.65 was exactly in line with this year’s daily average, suggesting that overall bidding interest remained broadly consistent with historical levels. While the unusually high clearing premium points to firm demand at the auction, the average cover ratio provides little evidence of a broader increase in buying interest.

“Traders reported that bulls appeared to be motivated more by a ‘fear of missing out’ on the rally than of a response from European politicians concerned at rising energy costs”, according to Carbon Pulse, highlighting the role of market sentiment in yesterday’s unusual divergence between carbon and gas prices.

In financial markets, Fear of Missing Out (FOMO) refers to the emotional pressure that drives traders to enter positions during rapid price movements, fearing they may miss out on potential profits.

Such sentiment-driven buying appears to have played a significant role in the latest carbon market rally, overshadowing traditional market fundamentals. Despite sharp declines across conventional energy markets and the prospect of potential regulatory intervention by European policymakers, buying momentum remained strong, suggesting that bullish sentiment continues to dominate the market, at least in the short term.