The UK Emissions Trading System (ETS) also ended its weeks-long upward trend due to a pause in speculative buying.
According to Carlton Carbon’s data for the week, EU Allowance (EUAs) prices declined by €2.71 (3.66%) to €71.39, reflecting a 3.26% drop in the month-ahead TTF gas benchmark over the same period.
In the UK, carbon allowance prices fell by £1.17 (2.41%) to £47.44, ending nearly seven weeks of consecutive gains that had brought prices close to £50 for the first time since October. The discount relative to EUAs narrowed to £13.24, a decrease of £1.13 (7.93%), marking its lowest level since March 14.
Recent exchange data up to May 31 revealed that investment funds, pivotal in driving the price recovery, continued to increase their record-long positions. Speculative investors added 1.7 million to their holdings, bringing the total to 6.6 million.
Efforts to normalize relations with European allowances are underway, but the market remains fragile amid reminders of oversupply challenges. The UK ETS Authority’s report for 2023, released on June 7, showed a 12.5% year-on-year decrease in verified emissions, underscoring ongoing market dynamics.
Carlton Carbon expressed caution about sustained recovery, particularly with impending market reforms possibly following a government change post-July 4. The UK is scheduled to auction 2.76 million allowances on June 12.
In the EU, fluctuations in TTF gas prices continue to influence carbon values significantly.
The completion of repairs at Norway’s offshore Sleipner platform has boosted production to approximately 325 Mcm/d, easing supply concerns that had arisen during the spring maintenance season. Although some maintenance work will continue, production is expected to remain stable until significant reductions resume at the end of August.
While local supply issues persist, broader concerns focus on LNG availability, especially with heatwaves affecting South and East Asia. This has driven LNG imports in the region above the five-year average, maintaining prices at six-month highs as buyers compete for cargoes.
Additionally, outcomes from the European Parliament elections, favoring conservative and far-right parties over the Greens, initially sparked bearish reactions. However, continuity in leadership under Ursula von der Leyen as Commission President suggests policy stability, though new parliamentary dynamics may influence future climate ambitions.
Looking ahead, Carlton Carbon anticipates a potentially stable week around €70, influenced by renewable energy generation, a condensed auction schedule, and ongoing geopolitical risks. Despite some bearish technical signals and funds slightly increasing their net short position to 8 Mt, critical support levels in the high €60s could be tested.
Outlook Summary:
- Neutral carbon price outlook
- EUAs weaken amid easing gas pressure
- Recovery in North Sea gas production offsets LNG concerns
- Investor sentiment is cautious, with net short positions rising
- shift in European Parliament composition may influence ETS reforms
