Funds boosts positions in EU carbon market to more than four-month high

Investment funds active in the EU carbon market have raised long positions to a four-month high, despite mixed fundamentals such as low seasonal demand and geopolitical uncertainty surrounding the upcoming US-Russia summit on Aug. 15.

According to the latest Commitment of Traders report released Aug. 13 by the Intercontinental Exchange, funds held 28.9 million allowances as of Aug. 8, marking a 39.09% week-over-week increase.

Investors held 65.97 million EUAs in gross long positions, an 11.24% week-over-week increase, while gross short positions were cut to 37.11 million, a 3.75% decline.

Rangebound prices

This marks the third consecutive week of length being built by funds as the market responds to geopolitical developments and supply curtailments from the updated carbon auction calendar.

"[The] trade agreement and auction calendar created clarity, and EUAs are cautiously testing the upside," a carbon trader said.

The EU and the US reached a trade agreement in July, easing industry concerns about the impact of high tariffs on future demand. Market sources previously told Platts that this has reduced market uncertainty and supported prices.

However, demand remains low due to the holiday season, with many market participants expected to return in September and a healthy supply picture ahead of the expected curtailments later in September, in line with Market Stability Reserve intake.

"I should imagine [there has been] some profit taking between the COT report and today, given the length and subsequent price action," said a second trader.

EU Allowances were trading at Eur71.62/mtCO2e ($83.84/mtCO2e) at 1452 BST (1352 GMT) on Aug. 13, ICE data showed. This was down 2.17% from the Aug. 8 settlement after sell-off activity in previous trading sessions.

Another trader attributed the recent increase to market expectations surrounding the upcoming summit between US President Donald Trump and Russian President Vladimir Putin on Aug. 15, where officials are expected to discuss the ongoing war in Ukraine. A deal would be supportive for natural gas, power and carbon prices, the trader said.

However, sentiment around the summit remains cautious. "Sentiment generally on the summit doesn't seem to be very optimistic," said the first trader, casting doubt on the likelihood of a deal.

Despite a volatile year to date, EUAs have remained rangebound trading within the low Eur70s since May, amid mixed fundamentals. Low demand and short-term oversupply have been offset by upside risks from late compliance buying and geopolitical uncertainty in the natural gas market.

"EUAs have been stuck in rangebound territory for the past months due to a lack of news to speak about," said a carbon broker, adding that EUAs were bearish in the short term, but speculative traders were supporting prices.

Platts, part of S&P Global Energy, assessed EUAs for the nearest December delivery in the range of Eur69-73/mtCO2e since the beginning of July.

UK market

Investment funds active in the UK carbon market also increased net length. Net long positions stood at 18.3 million allowances, a 4.56% week-over-week increase, ICE COT data showed.

This marks the longest positions held by funds for UK Allowances since early June, a more than two-month high.

Questions remain over the planned linkage between the EU and UK Emissions Trading Systems, agreed upon in May. While the European Commission approved the start of negotiations in July, market participants await further clarity on next steps and potential timelines.

The market views the linkage as a bullish signal for UK Allowances, which are expected to rise to meet EUA prices if the systems link.

"UKAs are drifting around with EUAs at the moment," said a carbon broker, adding that prices have been moving in line with each other in recent months.

Despite the lack of further clarity on timelines, the UKA nearest December price has remained supported.

Platts assessed the nearest December delivery in a range of GBP46-51/mtCO2e since the beginning of July.