Geopolitical and economic concerns look likely to dominate, potentially ignoring the tight market balance and strong fundamentals while uncertainty reigns. Free allocation is to be distributed on Monday also, which could prompt some selling. We have a bearish outlook for UKAs this week:

  • Speculators are typically a key segment of sellers in these uncertain scenarios judging from past experience, the lack of speculators in the UK ETS relative to the EU ETS may limit selling.
  • Sanctions are likely to affect commodity prices even though the UK itself doesn’t import much gas from Russia. High gas prices due to Europe’s dependency on Russia could prompt shutdowns, while cutting flows of money and goods will no doubt have a negative economic impact that could reduce UKA demand.
  • Sunny mild weather may limit demand from the energy sector – see chart 2.
  • Free allocation to be sent on 28 February: it remains to be seen if this might bring some sellers out of the woodwork. Companies will conceivably be able to borrow 2022 free allocation of UKAs for 2021 emissions, thereby avoiding buying at these high prices.

UK ETS Outlook: bearish

Indicative UKA price: £81.75

YTD average UKA price: £80.53

MTD average UKA price: £85.13

1. UKA Dec22 Price Chart 2. Snapshot of UK energy generation 28/2
from grid.iamkate.com

 

For more details on market outlook & protecting against your carbon risk, please email or call +31 20 522 0292