European Union Allowances Ripe For A Short-Covering Rally

The front December European Union Allowance (EUA) futures contract has fallen from a peak of €105/tonne on 27/02/2023 to €56/tonne on 27/02/2024. As much as the resilience of EUA prices through the COVID and energy crisis from 2020 to 2022 had surprised to the upside, the recent decline has surprised to the downside. Admittedly given the state of the European economy and the mild winter it is hard to be bullish on EUA price in the short-term, but the extent of the decline appears overstretched and ripe for a short-covering rally.