10 million CCAs traded as market continues to see positions roll forward

CaliforniaCarbon.info, November 9, 2015: Following a quiet week in which just 2,025,000 California carbon allowances (CCAs) transacted on the InterContinental Exchange (ICE), the first week of November saw volume increase to 10,313,000, as horizontal spread trading continued to boost end-of-year liquidity.

V2016s accounted for nearly half the week’s traded volume with 5,075,000, including 4,800,000 CCAs split equally between deliveries in Dec15 and Jul16. The rest of the traded volume consisted of V2015s (3,252,000), V2017s (500,000), and V2018s (1,486,000), with 52.07% of the entire week’s traded volume falling on the Dec15 delivery.

Prices rose for most instruments with the V2018 registering the largest gains, which resulted in the vertical spread between vintages closing up completely. Implied funding rates dipped mid-week, coinciding with increased spread trading activity. However, with the rear of the forward curve rising once more later in the week, the Dec15/16 and Dec15/18 annualized funding rates closed at similar levels to two weeks ago at 2.95% and 3.38% respectively, while the Dec15/17 carry closed slightly lower at 3.02%.

Open Interest (OI) in the market fell by 797,000 over the week (not including the contract volume of 6,250,000 that expired at the end of October), largely due to a drop of 2,810,000 on the Dec15 total, which still maintains the highest OI of 42,662,000. OI on the prompt month delivery increased slightly (by 920,000), as did the OI for 2016 (893,000) and 2017 (200,000).

The Air Resources Board last week released the state’s covered emissions data for the year 2014, which provides an oversupply of 34.5 million at the end of the first compliance period (2013-2014), in line with CaliforniaCarbon.info’s forecast. Being in line with expectations, it is unlikely to have any large impact on secondary market trading. Last week also saw the biennial surrender fell short of seeing 100% compliance by 500,000 allowances, which will now have to be covered four-fold by December.

The final joint auction of the year is scheduled to be held next week, and with prices remaining level so far – unlike previous auctions where secondary trading inches down under rising spot pressure – the highest primary clearing price of the year could be in store.

For more detailed technical and fundamental analysis, please consult the Weekly Carbon Outlook, available to our DataSmart and Pricing & Forecasts subscribers.

Rahul Rana – (rahul@californiacarbon.info)

Steven Neoh – (steven.neoh@climate-connect.com)