EU carbon dioxide allowance prices under the EU Emissions Trading System rallied sharply to as high as Eur19.75/mt ($22.6/mt) Thursday, adding to gains seen earlier in the week and lifting European power prices.
The rally in Week 45 has taken carbon prices back to where they were October 24 before a sharp sell-off pushed prices as low as Eur15.10/mt on November 1.
The earlier price drop was linked to falling natural gas prices which reduced the coal-to-gas fuel switching price for power generation.
The lower prices of just above Eur15/mt appeared to attract buyers back into the market, with prices testing the downside and finding support.
That was also confirmed in the primary market, with daily carbon auctions clearing at successively higher prices since November 2.
Those factors indicated market participants may have seen the sell-off as overdone, leaving the market poised for a technical rebound.
That may have left carbon prices sensitive to any bullish triggers. Prompt natural gas prices rose strongly Thursday after a collision between a tanker and a Norwegian frigate prompted Norway's state-controlled Equinor to shut down the Kollsnes gas processing plant, limiting gas flows.
The outage was expected to last about 12 hours. The incident contributed to UK prompt gas prices jumping 7% on the day, although prices on the curve were slightly lower.
A continental Europe-based carbon and energy analyst said carbon had already found support in Week 44, and the gains continued this week.
"The 200-day moving average the price reached last week was an important support level that many traders watched. It might have been a good entry point for buyers. And shorts got squeezed out since then," the analyst said.
"After the [downward] correction, the price reached a level that is acceptable for many compliance entities. Even the Polish energy minister said that a carbon price of Eur16-17/mt is acceptable for the utilities. We received many requests from installations that did not buy above Eur20/mt and were happy that they do not pay the highest price of the year for their compliance," she said.
"As temperatures started approaching the seasonal average, the interest of utilities also increased," the analyst said.
The additional strength in carbon prices also lifted European power prices Thursday.
German year-ahead power contracts gained Eur3/MWh in two trading sessions on the back of strong EUAs and coal prices. The contract rose Eur1.60/MWh to Eur52/MWh just before noon London time Thursday, mainly due to carbon as coal traded sideways.
Even stronger gains were seen on the front-month power contract, which was last seen at Eur53.35/MWh, Eur4/MWh above Tuesday's price, and Eur1.80/MWh up on the day.
Italian year-ahead contracts were last seen trading at Eur65.70/MWh, recovering the past two week's falls although were seen trading as high as Eur67.30/MWh earlier in the session. Corresponding French prices were also seen posting strong gains, up over Eur1.40/MWh at Eur56.55/MWh.
Spanish power prices were also seen rising on strong emission gains, with Calendar 2019 at a month high as it was last trading at Eur61.10/MWh, up 35 euro cent/MWH from where OMIP settled Wednesday. The contract rose almost Eur1/MWh during Wednesday's session.
Gas prices were also seen rising Thursday in continental markets, with the Calendar 2019 Dutch TTF contract last seen trading 32.5 euro cent/MWh higher at Eur23.475/MWh as gains were seen throughout the curve.
