EU carbon falls below 14 euros, utility buying sought

LONDON (Reuters) - European carbon futures broke below 14 euros for the first time in three months on Tuesday, a day after tumbling by 4 percent, as speculators weighed on the market in the absence of utility buying, traders said.

EU Allowance futures for December delivery fell as low as 13.96 euros a tonne by 0925 GMT, down 11 cents or 0.8 percent from Monday's close.

Traders are questioning when utilities, the main compliance buyers in the European Union's Emissions Trading Scheme, will return to seek bargains and support EUA prices, thereby curbing the speculative short-selling that has pushed the futures to these levels.

"It's quite cheap right now ... but utilities are waiting for more signs of stabilization before they come back," said one emissions trader, adding that he sees 13.70 euros as the next technical support level.

The Dec-10 EUAs also broke below their 200-day moving average for the first time since mid-April, the last time the benchmark contracts traded below 14 euros.

Trading volumes were on the light side with over 3,500 lots transacted on the European Climate Exchange by 0950 GMT.

EUA prices plummeted by over 4 percent late on Monday after breaking below a key technical support at 14.35 euros, a move traders said triggered several stop-losses, which drove prices down to 3-month lows.

"The market came off pretty fast after going through that support, and now that CO2 prices have lost 10 percent in five sessions, the question is where the buying from utilities will come in," said Jean-Francois Cauvet of C2C Commodities.

Germany auctioned 300,000 spot EUAs on the EEX at 13.85 euros each on Tuesday morning.

CER prices defied lower EUAs, with the Dec-10s rising by as much as 18 cents or 1.5 percent to 11.88 euros a tonne, a day after closing at 11.70 euros a tonne, the lowest since April 6.

The EUA-CER spread narrowed to around 2.15 euros, a near 2-month low.

German Calendar 2011 baseload power trading on the EEX slipped by 7 cents to 51.30 euros per megawatt hour.

U.S. crude oil futures reversed early losses to rise above $75 a barrel as optimism about the economic recovery offset a report predicting oil demand growth will slow next year, leaving the market well supplied.

The International Energy Agency said on Tuesday global oil demand growth was expected to slow in 2011 to 1.35 million bpd, leaving the market with comfortable supplies until at least the middle of next year.

New Australian Prime Minister Julia Gillard, facing an election where climate policy will be a key issue, has pledged again to bring in a carbon price but said it may take time as it needed industry and voter consensus.