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Investors increase carbon net short bets

(Montel) Speculative investors slightly increased their net short positions in the carbon market last week after the Ice exchange amended data for the prior week, figures showed on Wednesday.

Investment funds were net short by 32.5m tonnes by last Friday, compared with a net short position of 30.7m tonnes the prior week, according to the exchange’s latest report on the commitment of traders.

The funds specifically added 1.8m tonnes of long positions to reach a total of 32.1m tonnes. They also added 3.7m tonnes of short positions to total 64.7m tonnes.

Carbon prices eased marginally last week to settle last Friday at EUR 63.40/t. They last stood at EUR 63.08/t, down EUR 0.50 day on day.

Analysts have mostly attributed a 20% slump in carbon prices since the start of this year to a combination of weaker gas that has slashed the cost of switching from coal generation, as well as electricity prices too unattractive to entice utilities to lock in sales on their future production.

Technical breakout looms
Prices have more recently been entering an “ever-tightening technical ‘wedge’ pattern, with a breakout of the wedge to set the short-term direction”, Redshaw Advisors said in a note.

The thresholds for a breakout were EUR 63.90/t on the upside and EUR 61.40/t on the downside, the company said.

“Thereafter, the key levels remain the recent high and low at EUR 66.43 and EUR 60.86.”

Carbon market participants view the balance of investment funds’ positions as an indicator of market sentiment. The emergence of large concentrations of long or short positions can amplify moves in the opposite direction when traders need to stop further losses on poor bets.

Corrects change in net short positions from a slight decrease to an increase after amendments to the prior week’s figures were overlooked. Ice exchange revised a drop in net short positions on 26 January about 2.4m tonnes lower. The figures for total shorts and longs on 2 February in the original story remain correct. This is an updated version of the story to reflect an official revision in net short positions.