Market Report Week 6 - 03.02.2026

Oil market: Update on Iran and geopolitical risks 

Iran has once again topped the agenda this week. We started out last week with negotiations in Geneva between Iran and the US, and oil prices retreated.

Iran said last Tuesday that a “general agreement” had been reached with the US. The US Vice President also said negotiations were progressing well, but that Iran has not yet accepted Trump’s red lines. According to US sources, Iran and the US will each return to Geneva within 14 days with a new proposal.

This suggested that Iran would move lower on the market agenda for a period, and that oil prices could fall as focus returned to fundamentals. 
However, Iran returned to the top of the agenda on Wednesday as the peace expectations evaporated. The respected media outlet Axios reported, based on sources within the US administration, that a US attack may be imminent. The article argued that an attack could come as early as last weekend. The Axios story was followed by similar news stories by New York Times and CNN. Considering the 14-day deadline mentioned earlier in the week, this was hard to understand. 
But it underlies that the Trump administration is completely unpredictable from the market’s perspective. But one thing we do know: Trump is well aware that rising gasoline prices resulting from Middle East bombardments are certainly not popular among the MAGA voter base. 

That may be why new signals were sent again on Thursday night. Trump now said that Iran has a maximum of 10-15 days to reach an agreement on its nuclear programme. This suggests that there would be no military attack over the weekend, despite the many sources pointing in that direction and the massive buildup of US military forces in the region, the largest since the Iraq War in 2003. In that case, it would all be an attempt to increase pressure on Iran.
But for now, it seems likely that an attack could be imminent. Whether it will happen before the planned negotiations on Thursday or over the next couple of weeks is an open question. But we doubt Itan will accept the US demands.  

Adding to the geopolitical risk premium last weke was news that Russia is sending a warship to Iran to conduct joint naval exercises in and around the Strait of Hormuz with China. The exercise highlights a key US vulnerability: Iran can push oil prices higher by paralysing the Strait of Hormuz, through which 20% of global oil passes. Even a doubt about security in the Strait would prompt many vessels, for insurance reasons, to face difficulties transiting, as premiums would rise sharply. We have seen how easily the Hoothies have blocked the Red Sea. It basically just takes a soldier with a shoulder-launched Manpad.  

EUA market update: First signs of stabilisation. Utilize the price correction to buy

EUA prices have been under heavy pressure over the last couple of weeks, in what could best be described as a toxic combination of rising political risk and a market caught speculative long. Last Monday, the benchmark Dec-26 contract fell below EUR 70/MT, down 25% from the January peak.

Political rhetoric has been the primary driver of the sell-off. Two weeks ago, German Chancellor Merz signalled openness to revising or postponing tightening measures in the EU ETS, echoing earlier comments from President Macron, who argued that prices should be closer to EUR 30–40/MT to better balance climate ambition with industrial competitiveness.

Although both Merz and Commission President von der Leyen later defended the system, the cat was now out of the bag regarding political risk in EUA pricing. A risk premium had entered the market well before expected. The European Commission will formally discuss the EU ETS in Q3, but the debate is already public.
This comes, of course, on the back of a European — notably German — energy-intensive industry struggling to keep up with Asian and North American competitors facing lower gas prices and low or no carbon costs. Add US tariffs, a weaker US dollar, and a true hurricane has hit European manufacturing.

At the same time, speculative positioning has clearly been skewed to the long side. This positioning overhang, combined with rising political uncertainty, is a toxic combination that has left the market with a falling EUA knife that few participants are willing to catch.
From a technical perspective, the market appeared oversold last week when the RSI (a technical indicator) fell below 30. The break below EUR 70/MT for the DEC 26 benchmark contract and the subsequent recovery were also technically significant, as the move below EUR 70  MT potentially opened the downside to EUR 63/MT—the April low seen in the aftermath of the Trump administration's trade escalation.
However, for hedgers, the sell-off also offers a buying opportunity. There is a long lag between political rhetoric in the press and actual supply-and-demand changes, suggesting it is worth taking advantage of lower prices for compliance hedging in 2026 and possibly 2027.
Signs of stabilisation seen

Over the last week, we have seen a stabilisation in the market, and the DEC 26 contract is again trading above the important EUR 70 MT support level. 

This underscores that the market is seeing solid buying interest around EUR 70. Positioning data on Wednesday showed that speculators have now closed the net long positions established in Q4. This also convinced the market that the bulk of the sell-off is behind us. 
We also had important news from Italy, where the government approved a plan to cover EUA costs in electricity prices for gas-fired power plants. This means that the normally most expensive power in the system, based on gas, becomes cheaper and thereby pulls overall power prices lower.

For the EUA market, this has two implications. First, it becomes more attractive to use gas for power generation in Italy. Producers must still surrender EUAs, but since the cost is covered, the incentive to reduce consumption is weaker.

Second, if this becomes the preferred solution to shield companies against high EUA prices, rather than increasing EUA supply, it could increase overall EUA demand and support higher EUA prices.