European carbon hits 5-month low on oil, no buyers
LONDON, Aug 5 (Reuters) - European carbon emissions prices hit a 5-month low on Tuesday as weaker energy prices and sparse compliance buying put downward pressure on EU permits, traders said.
EU Allowances for December delivery CFI2YZ8 traded down nearly four percent to 20.41 euros a tonne early on Tuesday, the lowest price seen since early March. Prices recovered to 21.25 euros a tonne at 1100 GMT, near unchanged from Monday's close.
"Carbon was quite resilient against Monday's drop in oil prices," an emissions broker at London-based Newedge said, adding that compliance buyers, now seeing an oversold market, are starting to return.
U.S. crude futures CLc1 tumbled on Monday and continued to fall Tuesday, dropping below $120 a barrel for the first time since May as investors focused on rising OPEC supply and declining demand in the United States and Europe. [O/R]
"There is still a lot of bearish sentiment out there at the moment," Trevor Sikorski, an analyst at Barclays Capital (BARC.L), told Reuters.
"With little fundamental support, the EUA market keeps looking for a bottom."
EUAs are down nearly 30 percent since peaking at 29.69 euros a tonne in early July as cooler summer weather and ample hydro levels across Europe have reduced the utility demand for EU permits.
"Part of the reason is spot gas prices are quite far in the money," Sikorski said, adding natural gas prices would need to fall further before power generators would opt to burn coal over cleaner natural gas, thus requiring them to purchase more EUAs.
CERs
CERs, the project-based offset credits that EU industry can use to meet compliance targets in the Emissions Trading Scheme, showed more strength on Tuesday after rebounding from a 3-month low hit late last week.
Secondary market CERs for December delivery, trading on the European Climate Exchange CEREc1, were 31 cents higher at 18.45 euros a tonne.
"CERs have stabilised a bit ... We've got good support as there's not a huge number of sellers out there," Sikorski said.
Secondary CER prices hit a 3-month low of 16.75 euros a tonne on Friday, the lowest level since early May.
The EUA-CER spread continued to narrow this week, with the differential dropping below 3 euros for the first time ever.
Primary market CERs prices, representing the initial transaction of the UN-approved offsets between the project developer and the credit buyer, also showed good support last week, as pCERs dropped just 10 cents to 12.65 euros a tonne for a project with average risk, carbon market analysts IDEAcarbon said.
"The CER market is being driven by short-term dynamics rather than long-term considerations," Sikorski added.
"In the short-term, even though we've seen better issuance (by the UN), the levels are still very low compared to the total demand for CERs in phase 2."
The UN's climate change secretariat distributed 7 million CERs last week and a total of 14.4 million in July, the most ever issued in a single month.
The total issued CER market now lies at 177.5 million.
For additional carbon markets analysis and prices, or to see IDEAcarbon pCER prices, go to www.reutersinteractive.com (Reporting by Michael Szabo; editing by James Jukwey)
