EU carbon surges late, boosted by German auction

LONDON (Reuters) - Defying a weaker energy complex, European carbon prices surged by two percent late on Wendesday, boosted by a German permit auction, after the spending much of the day in negative territory, traders said.

Benchmark EU Allowances fell by some two percent shortly after the open but rose slowly throughout the day, clawing back above Tuesday's close following a German auction for 570 lots of EUA futures on Wednesday afternoon.

Dec-10 EUAs rose as high as 13.14 euros a tonne, up 27 cents, late in the session before closing slightly lower at 13.10 euros.

In its weekly EUA futures auction, Germany auctioned the permits, for delivery in December, over the European Energy Exchange (EEX) at a closing price of 12.81 euros a tonne.

"It was a strong price for the auction," one trader said.

"Normally it's utilities supporting EUA prices around these levels, but the buzz is a couple of financials are buying today," he added.

Spot EUAs trading on BlueNext closed up 25 cents or two percent at 12.92 euros.

"There's very little downside now but a lot of upside on EUA prices and I think we're going to see pressure from utilities on the buyside," another traded said earlier.

Traders said they were surprised by carbon's resilience, especially in light of bearish U.S. data and weaker energy prices.

U.S. crude oil futures dropped below $80 a barrel to its lowest this year, pressured by a U.S. inventory report showing rises in crude and distillate fuel stocks despite severe winter weather.

Crude stocks, expected to rise 1.2 million barrels, increased by 3.7 million, the Energy Information Administration said. Inventories of distillates, forecast to fall, rose by 1.4 million barrels.

British gas prices traded lower after tumbling on Tuesday as Norwegian supply recovered after weather-related shutdowns at the weekend and on milder temperatures.

The nearby contract closed down 0.15 pence or 0.4 percent at 34.50 pence per therm.

German calendar 2011 baseload power lost 50 cents to a 2-week low of 50.10 euros per megawatt hour.

Benchmark CER prices closed up 15 cents or 1.3 percent at 11.35 euros a tonne, settling the EUA-CER spread at 1.75 euros.

Ten analysts polled in the latest Reuters emissions survey said EUA prices will rise to average around 15.50 euros this year.