In the first three days of the past trading week, TTF Year-Ahead dipped by about 12pc, just as the benchmark December 2021 EUA dropped over the same period. Gas contracts recorded sharp losses between 17 and 19 May despite the fundamentals remaining bullish (tighter summer supply in NWE, low storage levels, unseasonably cold weather), which again shows carbon’s influence on the wider energy complex.
Both EUA and gas were moving in parallel in the later half of the week as well, the difference being that the prices rebounded from Wednesday lows.
This week’s developments are fully in line with the process of increasing carbon-gas correlation, with extra dynamism coming from speculative players who flooded the emissions market over the past year. In that context, it has become critical to closely monitor how EUAs react to the stock market movements, which in turn affects the gas curve.
Correlation between the two commodities works equally the other way round. Due to its impact on EUA demand, gas often sets the tone for the emissions market, especially at times when carbon lacks reference points of its own. It is this two-way relationship that is the key for understanding the synchronization between carbon and gas markets.
The opinions expressed in this blog are mine only and do not reflect the views of my employer