This week, EUA price developments are likely to be unpredictable as concern about gas supplies meets wider fears related to the economic impact heavy sanctions will mean for EU countries. These economic concerns, and temporarily increased Russian gas flows for now seem to be outweighing the bullish fundamental risk that cuts to gas supplies would imply. Wednesday / Thursday last week posted a bearish engulfing candlestick pattern – a strongly bearish price signal. Sellers may have been motivated to free up cash for margin calls on other commodities while would-be buyers may be wary of buying into a falling market. We might also be seeing profit taking by speculators. Some analysts comment prices of €60-70 might be a more ‘fair’ price for EUAs. It looks difficult to see the market recovering back to €90 or above in the near term, in spite of demand still exceeding supply. A long lower shadow for Monday’s daily candle on the price chart – if it lasts – suggests buying interest that may limit losses however – so the €80 region may be a key support level. 

  • Geopolitical and economic concerns related to sanctions look likely to have a bearish impact, outweighing coal fuel hedging, which is currently likely to continue out to the end of 2023. Suggestions of extending the lifespan of German Nuclear in response to the uncertainty of gas supply is another bearish factor.
  • Selling to fund margin calls on other commodities may be a factor causing the current price drop.
  • When we had the covid price crash in 2020, it was mostly speculators who were selling.
  • Gas flows increase, but disruptions due to sanctions could prices higher and prompt demand destruction. Gas flows from Russia have increased but analysts are warning disruptions caused by adjustments to manage new sanctions could cause supply cuts. Europe has enough gas to cover the rest of this winter, but a cut-off to supplies could force industry to shut down.
  • Near term gains to gas and coal prices likely more or less offset, meaning no net increase in EUA demand. Europe imports lots of coal as well as gas from Russia. That might mean no major impact on EUAs or resurgence of demand unless we start to see fuel switching ruled out by high gas prices through 2024. See chart 2. Forward curve Gas price increases might be mitigated by the development of strategic oil and gas reserves within the EU.
  • Italy ponders switching coal back on: this would add some buying demand for EUAs, though this week the bearish trend looks likely to dominate.
  • EUAs are near a zone of support around €80: see the chart below, EUAs have traded around the €80 level for extended periods this year. A break lower could validate analysts’ predictions of a correction to €60-70.
  • Government intervention? At present there is no talk of an intervention in the carbon price as part of a package to improve resiliency against current geopolitical threats. It is a possibility, with calls already for Article 29a on intervention in the market to be strengthened, but that piece of legislation is aimed at price spikes, not a response to geopolitical issues.

Outlook: bearish

  • Indicative EUA Price: €83.70
  • YTD Average EUA Price: €87.95
  • Month to date Average EUA Price: €91.65


1 – Dec22 EUA daily price chart 2 – Fuel switching levels for TTF gas

Gas prices must drop under the yellow line to price natural gas fired electricity back ahead of coal. Note movements between coal and gas recently look correlated.

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