As temperatures drop, market woes rise

As Americans stockpile toilet paper and Pop-Tarts to ride out Winter Storm Fern, let’s not forget that blizzards can also shake up markets.

Take natural gas, which has morphed from a ho-hum utility into a red-hot commodity this week. From Tuesday through Thursday, natural gas futures soared 63% to $5.04 per million British thermal units, a record three-day spike. That rally is expected to continue even after the storm passes due to short sellers who built an enormous position in natural gas over the last 14 months and are being forced to cover their bets.

Thankfully, these high costs won’t start gouging homeowners immediately, since utility companies tend to buy their gas well ahead of weather events and keep a healthy amount stashed in reserves. Still, 22% of Americans already can’t afford their utility bills, and Fern will eventually push those bills even higher this winter—which could be bad news for US consumers, and the economy as a whole.

Stocks in the eye of the storm

Americans’ need to crank their thermostats is only half the problem. The other half is supply, which is far from guaranteed during a storm. Plummeting temperatures can cause “freeze-offs,” where water vapor within natural gas wellheads and pipelines turns into ice. The result? No more heat.

During Storm Uri in 2021, natural gas production plummeted over 50% in Texas, Oklahoma, and Louisiana, leaving millions without heat or electricity, while power plants lost billions of dollars. Since then, many states have invested in weatherizing this equipment to ward off another energy supply disaster, but since these upgrades haven’t been put to the test yet, it’s sure to be a nail-biter finding out whether they work.

Utilities providers and power plant operators in the regions most affected by Fern could take a serious hit if the storm becomes too much for their infrastructure to handle. Some of the biggest losers after Uri included Exelon, Vistra Energy, and NRG Energy—and all three remain smack in the center of the path Fern is expected to take across the states.

But it’s not just the companies trying to keep the lights on that will bear the brunt of Fern. Airlines like American and Delta are already canceling flights, while shippers like UPS and FedEx are warning of delays. Then again, some companies will benefit from the wild winter weather, with grocers like Walmart likely to see a surge in pre-storm purchases. And of course, there are always unforeseen winners in situations like these.

Spotlight on utilities

As if Fern wasn’t putting enough pressure on utility companies, politics have also entered the picture. The energy needs of massive data centers are starting to show up in rising utility fees for consumers, and frustrations are beginning to bubble over.

New Jersey’s incoming Governor Mikie Sherrill declared a “state of emergency on utility costs” after residents’ electricity rates skyrocketed 42% over the past five years. In New York, ConEd caved to similar strong-arming and slashed its latest rate hike request by 87%.

Fern is about to add even more strain to Americans burdened by high utility bills, and to the companies that keep the power flowing. But hey, at least the storm is a good excuse to burrow under the blankets with some cocoa and all those Pop-Tarts.—JD