EUA price direction last week largely came from the reduction in primary auction supply amid an otherwise quiet week for European carbon. Dec-18 EUAs added 3.3% w/w on reduced auction supply to close Friday at 17.73 €/t. The options market retained its bias for call options, with total open interest (OI) on ICE showing 321 Mt for calls and 216 Mt for puts. For calls, 13 Mt of positions are in the money (strike price =<17 €/t) for Sep-18 options, while that figure is 140 Mt for Dec-18 options. For puts, no open positions are in the money for Sep-18, while less than 1 Mt is in the money for Dec-18. The option expiry dates remain bearish events on the horizon. The market can absorb 13 Mt of underlying EUAs being sold without much downside repricing, but the Dec-18 volumes hold out the promise of much greater downside potential. While current price moves are still largely about the activity of proprietary market participants, the hot weather that has scorched northern Europe all summer has also now gained a grip in southern European markets and is starting to cause bigger reductions in some forms of large-scale generation. In particular, some nuclear plants have reduced operations because of cooling water issues—high temperatures have caused water levels to fall and be too hot to meet legal requirements for reinsertion back into watercourses—causing 5 GW of plants to go offline in France and another 3 GW put as being off on “forced unavailability”. In Germany, cooling water issues have caused partial outages at 0.8 GW of nuclear plants, and low water levels have taken 1.2 GW of coal-fired plants offline. With the hot weather also driving higher power demand, some additional EUA compliance buying will be seen, adding further price support over the coming weeks.
|Fig 1: EUA spot prices, €/t||Fig 2: EUA forward prices, €/t|
|Source: Reuters, Energy Aspects||Source: Reuters, Energy Aspects|