September Developments:
- September was a volatile month: The fundamentals we have long discussed of increased EUA supply on the back of REPowerEU volumes – combined with a weak demand (lower than expected emissions from industry with some member states still having sluggish industrial output; fast renewable energy built-out resulting in higher renewable energy and lower fossil-fuelled output) leave the market overall balanced (or even with a small surplus) in 2024. This balanced or oversupplied state remains anticipated to reverse to a moderate deficit in 2025, increasing to significant deficit in 2026 and beyond.
- Investment Funds1 net short position end of August (-6.6m) increased significantly in September to roughly -19.3m (peaking at -23.3m on 20th Sep 2024) – as carbon prices have been still very correlated with European gas prices, it is consensus in the market that these additional short positions have largely been driven by decreasing gas prices
- While short positions increased in September (-47m to -63m), the long position of Investment Funds stayed stable at around 40-43m
- This overall results in bearish sentiment without the upward pressure of buying EUAs towards the compliance deadline.
Outlook:
- We expect to see fundamentals balanced for the rest of the year. Winter forecasts are mixed: lower than expected snow for most of Europe but more probabilities of colder winds. Renewable Energy output will start to decrease as per its seasonal cycle.
- Key to watch will be whether the gas transit agreement for Russian gas through Ukraine will be renewed or whether it will run out as schedule by end of the year. To fill this supply gap, different negotiations about other supply routes are on-going, but did not conclude yet.
- Next to this, the current developments (and a potential further escalation) in the Middle East and their impact on energy prices (oil, LNG, gas) could impact carbon prices in the next weeks and months.