August Developments:
- In light of the changed compliance cycle, August 2024 saw for the first time “normal” auction supply of allowances, compared to the 50% cut applied until last year. As a result, the market rallied for most of the month, peaking at cEUR 73 mid of the month and then slowly retreating to end at cEUR 70, marginally up against end of July.
- Investment Funds1 are reversing their short positions and reached the lowest net short position since end May. This driven by an increase in the long positons instead of a decline in shorts – another symptom of our muchdescribed tug-of-war between bulls and bears.
- The market overall digested the hand-out of free allowances and high August auction volumes well, and therefore sends robust signals that the current price range will be difficult to break to the downside.
Outlook:
- Up until this year, the compliance deadline for emitters to surrender their allowances has been 30th April. In 2024 the compliance deadline shifts to 30th September. Therefore September could see increased volatility, as companies might seek last-minute EUA supplies.
- In Q4, fundamentally the market remains balanced, which indicates a continued rangebound trading in the cEUR 60-75range as we have seen for most of the year.
- On the other side, we are approaching 2025/2026 which will have a fundamental deficit in allowances – in particular 2026. Investors and polluters in the past positioned itself for such fundamental paradigm changes in advance
- Over the winter, first signs indicate an increased likelihood of a colder-than-normal winter, which would be bullish for EUA prices – on the other side a mild winter would drive prices lower