Summary:

1. CCA front slips to $32.23 after week’s high of $32.70. 
2. ICE weekly volume reported as 13M tons (-64% WoW), 4-week moving avg. 25.9M tons
3. CFTC: Total OI decreased by 5.6M tons after expiry of May22

Technicals: 

Trading activity dropped by 64% in the week after the CCA Auction Result, to 13M tons. With reduced participation and some profit booking, the front after a high of $32.7 on Wednesday, last traded at $32.23 (+ $0.30 WoW). The secondary market gained fresh OI of 0.98M tons WoW*.

Trader Positions:

CFTC V22: Positions across all traders (31st May)

Total OI has decreased by 5.6M tons after the expiry of the May22 contract. These were mostly long positions by compliance entities (3.9M tons) who were willing to purchase additional allowances on the secondary market, in the chance that their auction bids were not successful. Additionally, their short positions of 1.3M tons added to market liquidity. 

CFTC V22: Fund Manager change in positions (31st May)

Fund managers increased exposure to the secondary market after the positive outcome of the auction. The futures data on ICE suggests that these were most likely positions on Dec23 and Dec24. 

CFTC V22: Covered entity change in positions (31st May)

The May22 contract that expired on 25th May, took with it net long positions of roughly 2.2M tons. Last week compliance entity participation was low as they reassess their appetite after the results. The transfer of allowances to the CITSS accounts will be completed on 16th June after which we would see increased trading activity and positions opening on the secondary market.

Market Fundamentals:

1. The auction cleared at $30.85, which means that more Dec22 positions would enter the market should the front price move closer to $31. Compliance entities will need additional allowances after the 2022 Annual Surrender.
2. Read our latest Analyst Note and forecast on Emissions, Supply Demand and Price. 
3. Join our Scoping Plan Webinar on 16th June to get the latest updates on the Draft Scoping Plan document. 
4. California average gasoline prices have increased by $0.30 cents, now at $6.34. The overall effect is a conscious reduction in VMTs which could then reduce transportation emissions.
5. According to a UCLA study on California’s economy, construction and logistics sectors will be strong drivers of the economy in 2022. California tourism is not expected to go back to 2019 levels until 2024. Also, the study anticipates a robust economic recovery in June with short-term high inflation.

Analyst Contact:

Anant Jain

anant.jain@californiacarbon.info