European carbon hits 5-month low on oil, no buyers

By Michael Szabo

LONDON, Aug 5 (Reuters) - European carbon emissions prices hit a 5-month low on Tuesday as weaker energy prices and sparse compliance buying put downward pressure on EU permits, traders said.

EU Allowances for December delivery CFI2YZ8 traded down nearly four percent to 20.41 euros a tonne early on Tuesday, the lowest price seen since early March. Prices recovered to 21.25 euros a tonne at 1100 GMT, near unchanged from Monday's close.

"Carbon was quite resilient against Monday's drop in oil prices," an emissions broker at London-based Newedge said, adding that compliance buyers, now seeing an oversold market, are starting to return.

U.S. crude futures CLc1 tumbled on Monday and continued to fall Tuesday, dropping below $120 a barrel for the first time since May as investors focused on rising OPEC supply and declining demand in the United States and Europe. [O/R]

"There is still a lot of bearish sentiment out there at the moment," Trevor Sikorski, an analyst at Barclays Capital (BARC.L), told Reuters.

"With little fundamental support, the EUA market keeps looking for a bottom."

EUAs are down nearly 30 percent since peaking at 29.69 euros a tonne in early July as cooler summer weather and ample hydro levels across Europe have reduced the utility demand for EU permits.

"Part of the reason is spot gas prices are quite far in the money," Sikorski said, adding natural gas prices would need to fall further before power generators would opt to burn coal over cleaner natural gas, thus requiring them to purchase more EUAs.