Carbon breaches EUR 55/t to eye breakout | Montel

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The benchmark contract for EUAs was last seen at EUR 54.90/t, up EUR 1.65 on its previous close. 

Earlier in the session it touched EUR 55.21/t, bringing it to within EUR 0.25 of a peak struck on 14 July when the EU executive published proposals to align the carbon market with a stiffer climate target this decade. 

“Carbon has good potential to go further up,” said one carbon trader at a European utility. “We see all the energy complex higher, and I see no end there.”

Traders singled out support from an especially tight gas market that climbed to a fresh record of almost EUR 43/MWh on the Dutch TTF hub as outages compounded concerns inventories will be unable to refill sufficiently ahead of winter this year. 

Fuel switching support
This year’s surge in gas prices has dramatically reversed last year’s pressure on German lignite generation, raising demand for carbon allowances.  

“Gas to coal switching levels remain bullish,” said consultancy ClearBlue Markets in a note on Monday. It pointed to a disproportionate rise in gas prices relative to coal that has made the latter more competitive for power markets.  

Average German gas plants would lose around EUR 11/MWh selling power next month at prevailing, carbon, fuel and power prices, according to Montel estimates. By contrast, an average hard coal plant could still earn around EUR 4/MWh. 

The carbon rally comes as new permit supply via auctions effectively halves this month in line with an annual fall in trading activity over the summer holiday period. 

“Light volume and [a] big morning move indicate that the market easily moves higher,” said another carbon trader. “That could show us how August is going to look.”

A close around the intraday peak of EUR 55.46/t on 14 July could set up a breakout to a new trading range between EUR 55/t and the all-time high of EUR 58.64/t reached on 1 July, he added. 

Technical analyst Clive Lambert of Futurestechs identified EUR 55.34/t as the next major resistance for the market to hurdle on its way to a return towards the recent record.

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