Last week, EUAs recorded a 5% weekly gain, driven by escalating tensions in the Middle East, heightened fears of conflict, and the impact of option expiries pushing prices upward.

This week, bearish sentiment driven by a weak economic outlook and soft energy fundamentals could keep EUA prices under pressure. However, as investment funds are rebuilding their short positions, the risk of short squeeze is higher, while at the same time it anticipates a lower demand for emissions, as economic activity is slowing. With fear of escalation in the Middle East and winter preparations ramping up, the market could see an uptick in volumes. On the other hand, if economic conditions remain weak and deteriorate further, the market could face extended selling pressure, pushing prices lower. The interplay between these factors sets the stage for a potentially volatile, but sideways trading week.

Auction volume: 12.9 million EUAs, 1.7 million less than last week

Energy Fundamentals

• Gas storage sits at 94.2% full on September 28th, compared to 93.7% on September 21th, 2024.
• China unveils a raft of measures to boost the economy, signalling a potential increase in energy consumption and demand for natural gas.
• EIA expect gas prices to rise more
• Coal generation in OECD countries falls below half of its peak
• EU sets out to define low-carbon hydrogen
• Natural Gas Prices Soar as Inventory Concerns Take Center Stage, Boosting Bullish Sentiment Ahead of Winter
• Oil prices rises as  Fears of a Major War in the Middle East Mount

Investment Funds

• The net short speculative position held by investment funds decreased to -23.29m EUAs on September 20th (vs. -21.54m EUAs on September 13th).
• Gross short positions increased to -71.76m EUAs (vs. -65.11m EUAs).
• Gross long positions remained almost flat at 48.47m EUAs (vs. 43.57m EUAs).

Market Prices:

• Indicative Dec24 EUA Price: €66.40
• Indicative Spot EUA Price: €65.85
• YTD Dec24 EUA Price: €66.61
• MTD Dec24 EUA Price: €65.5

Chart A: December 2024 EUA Price (EUR)

Technical Analysis

From a technical standpoint, we are currently seeing EUAs following an uptrend, forming higher highs and higher lows on the daily chart. If the strong momentum continues, we could see the price of EUAs go towards 67.77 EUR at the 38.2% Fibonacci level. A break above this level creates a possible scenario where EUAs will move closer to the MA (50) level of 68.40 EUR, followed by the MA (100) level of 69.43 EUR. This trend is supported by the MACD, which is still in oversold territory, and the CCI which is not yet in overbought territory. Furthermore, with an increasing short position from investment funds, there is a higher chance for a squeeze to happen. Nevertheless, a movement towards the downside might drive the price towards the 50% Fibonacci level at 64.59 EUR.

Chart B: December 2024 EUA Price (EUR) - Technical

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