August 1, 2016 by Harry Horner
(CaliforniaCarbon.info, Aug 1, 2016) For the first time since the first auction of this year in February, front prices are now above ARB’s $12.73 reserve level. The front pushed through the market-defining barrier on Thursday, going on to rise again to close at a recent high of $12.77. The benchmark rose $0.07 this week, reaching $12.79 at Friday’s close. The significance of this in the run-up to the month’s joint auction on the 16th ought not be understated.
If this price can be sustained through to that date, a fully subscribed auction would not be a distant possibility – admittedly a large ‘if’. The recovered auction volumes would put a positive spin on the program politically, and the market’s sentiment would no doubt thaw in the sunshine. That is until the storm clouds of the next regulatory or legal episode appear, likely to take the form of a problematic CCC vs ARB resolution, or indeed the passage failure of SB 32 later this legislative session.
Elsewhere, volumes resurged this week on the back of a pair of plus two million trades for the December 2016 delivery period. Thus the week’s total of 5,359,000 dwarfed the previous week’s equivalent by more than a factor of seven. Due to the above, the vast majority – 88% – of the week’s trading was on the benchmark. The rest of the total was split between the retired front of July and some rare longer-term contracts brokered for December 2017. The division between vintages was more balanced this week, with V2016 and V2017 featuring almost equally heavily, whilst V2015 was a distant third with a token trade.
There was plentiful growth across the board in terms of open interest this week, a full 1,040,000 new contracts were created. These were split in a tussocked fashion between the July front, the benchmark, and the 2017 year-end. One possible hypothesis for this growth in open interest is that traders are looking to the now equally priced secondary market to conduct, ahead of schedule, business that would otherwise have been transacted at this month’s auction.
Harry Horner – (firstname.lastname@example.org)
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