The big short

Record net short position underlines the extreme negative sentiment towards carbon

“Everyone, deep in their hearts, is waiting for the end of the world to come.” - Haruki Murakami

Carbon market sentiment is extremely negative right now. Let’s take a look at some of the key charts that matter to the EU carbon market.

The latest Commitment of Traders data reveals that investment funds (IFs) have built a record net short position in the EUA futures market, betting that carbon prices will fall further. The previous record net short position occurred in May 2020, shortly after the pandemic got into full swing.

Based on the last couple of years it’s rare for IFs to hold a net short position for too long. In May 2020 the subsequent switch to net length positioning coincided with EU carbon prices jumping 50% to ~€30 per tonne over the following two months. However, we are in a very different economic and political environment now.

The options market for the Dec-22 futures contract, the most heavily traded contract is balanced with an overall put-call ratio of ~1.00. There has been very little change during the past few weeks with the most significant put call volumes around the €60 per tonne mark.