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Carbon Overtakes Gasoil as Open Interest Surged 55% in Past Year

Open interest in European Union carbon futures on the ICE Futures Europe exchange overtook those in gasoil after surging 55 percent last year, making emissions the second biggest market by that measure after Brent crude.

Open interest for EU carbon contracts aggregated across all expirations as of March 1 was 643,000 contracts, compared with 416,000 on the same day last year, according to data from ICE Futures Europe.

Interest in carbon has surged as the bloc begins to sell nearly all allowances to power utilities rather than giving most of them for free. They have plunged 46 percent in the past year, on concern about oversupply. They’ve rebounded by more than a third since Jan. 4, when they reached a record low.

“Among energy markets, carbon is the second most liquid after crude” in Europe, said Mark Owen-Lloyd, head of carbon trading at CF Partners (U.K.) LLP in London. “Banks, utilities, proprietary traders can all access it and they do,” Owen Lloyd said in an interview March 1, citing volumes on ICE Futures Europe and open interest. “As a proxy for the energy markets, carbon is the best way in.”

Brent crude open interest was 1.1 million contracts on March 1, up 25 percent from 882,000 a year earlier. Gasoil was at 529,000 contracts, 24 percent less than the year earlier’s 693,000.

Carbon permits for December fell 1.3 percent today to 8.93 euros ($11.80) a metric ton on ICE, as of 12:54 p.m. They have increased since last month when European lawmakers considered temporarily removing some supply from the market.

“There is a political and economical will to push the carbon price up to the level where it’s reducing emissions,” Owen-Lloyd said. “We feel reasonably confident about it.”

‘Irrational Exuberance’

The jump in prices since Jan. 4 may be “irrational exuberance,” he said. “Whether we get to 11 euros is a big question: it doesn’t take much for people to take profits and run for cover,” he said. “It’s very nervous out there.”

Most other EU energy markets including natural gas and power have wider bid-offer spreads and do not trade as continuously as carbon, Owen-Lloyd said. “There’s an awful lot more friction in trading them.”

Aggregated open interest for power contracts on Nasdaq OMX Commodities, the biggest power exchange in Europe, rose 6 percent to 55,818 contracts on March 1 from 52,656 a year earlier, according to exchange data.

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