Summary:

1. CCA front on Friday closed at 27.82, gaining $0.98 over the week.
2. ICE weekly volume was reported as 14.06 M tons (+90.5% WoW), 4-week moving avg. 27.27 M tons.
3. CFTC: Total OI decreased by 1.41 M tons (+18.5% WoW).

CCA prices witnessed a steady increase, after a stagnant week. The compliance entities decreased short positions by 0.19 M tons and managed money increased short positions by 0.12 M tons. The California Cap-and-trade markets adjust the floor price, APCR prices, and ceiling prices every year to adjust for inflation. Hence, higher inflation will push the minimum bid price higher. Currently, the auction reserve price is 19.7, which will increase next year to $21+. At the current prices CCA is trading, the risk of inflation remains low.

Market sentiment remains clouded with uncertainty as US central bank gears up for its policy decision this week, with some investors starting to brace for a big surprise. The US FED is expected to announce 50-75 bps rate hike in September as inflation continues to persist.

Senators Dianne Feinstein and Alex Padilla introduced the Save Our Sequoias Act last week. This bill will protect California’s giant sequoias – the largest trees in the world – from the threat of wildfire and expedite future wildfire-resiliency projects.

Technicals:

Trading activity on the ICE exchange increased 90% WoW to 14.06 M tons.

Trader Positions:

CFTC V22: Positions across all traders (13^th September)

In the CFTC data last reported on 13^th September 2022, total OI decreased by 1.41 M tons. The compliance entities decreased short positions by 0.19 M tons and managed money increased short positions by 0.12 M tons.

CFTC V22: Fund Manager change in positions (13^th September)

Managed money increased long positions by 0.04 M tons, along with an increase in short positions by 0.12 M tons.

CFTC V22: Covered entity change in positions (13^th September)

Compliance entities decreased long positions by 1.38 M tons and decreased short positions by 0.19 M tons.

Market Fundamentals:

1. Read our latest Analyst Note and forecast on Emissions, Supply, Demand, and Price.
2. The US FOMC raised federal rates by 25 bps in March’22, followed by a 50bps in May’22 and a 75bps hike in the June’22 and July’22 meeting. It is expected that the committee will deliver another 50-75bps hike later this month.
3. Oil prices rose on Friday as a spill at Iraq’s Basra terminal appeared likely to constrain crude supply but remained on track for a weekly decline on fears that hefty interest rate increases will curb global economic growth and demand for fuel.
4. Brent crude futures were up by 70 cents at $91.54 a barrel this week.
5. U.S. natural gas futures took a second straight hit on Friday amid worries over record domestic supply and easing global gas prices. U.S. prices fell despite forecasts calling for warm weather to persist until the end of September.

Analyst: 

• Craig Rocha (cmrocha@ckinetics.com)
• Megha Jha (mjha@ckinetics.com)