Carbon Risk

Carbon Risk

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Carbon Risk
Carbon Risk
Playing with fire
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Playing with fire

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Peter Sainsbury
Aug 17, 2023
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Carbon Risk
Carbon Risk
Playing with fire
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The latest COT report (w/e Friday 11th August) shows that investment funds increased their short position by 4.9 million EUAs verus week earlier to 11.3 million EUAs.

It’s dangerous to be too heavily exposed to lower carbon prices this time of year. The risk of a heatwave leading to higher power prices, the annual cut in auction volumes during August, coupled with low futures market liquidity and you’ve got a recipe for some long green candles on the daily charts. Oh, and throw in concerns about an LNG strike the other side of the world for good measure (see No room for complacency: Gas supply worries jolt Europe's energy markets).

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The decline in the net short position was a function of funds cutting their long exposure, while also increasing their short positions. The overall short position is now at its highest level since early June when funds were short 40-44 million EUAs, albeit only for a couple weeks. Putting those two weeks aside and the current short position is the biggest its been since November 2021.

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