(Bloomberg) — Around the world, people are already living through the havoc brought on by global temperatures that are breaking records. It’s about to get a lot worse.
Odds are growing that 2024 will become the hottest year in history as the Northern Hemisphere barrels into summer. Prices for some of the world’s most vital commodities — natural gas, power and staple crops like wheat and soy — are climbing. The world of shipping, already thrown into chaos from the Red Sea to the Panama Canal, is likely to be rocked again by parched waterways. And the potential for destructive wildfires is increasing.
The outlook is a bleak reminder of how wild weather driven by climate change is worsening inflation, elevating the cost of energy, food and fuel. Frequent natural disasters are also heightening the risk of devastating damages and insurance costs while making it harder to predict market moves. Last year, extreme weather and earthquakes inflicted global losses of $250 billion, according to Munich Re.
Some experts are predicting US natural gas prices could jump more than 50%, while wheat and coffee markets are also expected to rally.
Globally, 2024’s first four months were the warmest in 175 years, according to the National Centers for Environmental Information. The year will definitely rank among the top five hottest on record and has a 61% chance of knocking 2023 out of the top spot, based on the US agency’s analysis.
Adding to the misery, record-hot oceans threaten to spawn “explosive” tropical cyclone activity. And La Niña, a weather pattern that’s expected to take hold in August, will supercharge hurricanes in the Atlantic while also unleashing dry conditions in the US West and South.
For the global economy and oil markets, the biggest risk “is not Russia-Ukraine, is not Iran, is not Hamas-Israel,” said Edward Morse, senior adviser at Hartree Partners LP and the former head of Citigroup Inc.’s commodities research. “The biggest risk for the summer, for the world as a whole, is the hurricane season in the Gulf of Mexico.”
Read more: What’s a Heat Dome? Are We in for More of Them?: QuickTake
Here’s a look at the markets that have the potential for the most volatility.
Gas Prices Seen Surging
US natural gas futures could soar to $4 per million British thermal units later this year if hot weather boosts air-conditioning use enough to erode inventories that are currently plentiful, said Gary Cunningham, director of market research at Tradition Energy. Producers, meanwhile, are curtailing output from shale basins in response to relatively low prices, setting the stage for a tighter market.
Europe, which can no longer rely on Russian supply following the invasion of Ukraine, now competes with Asia for cargoes of liquefied natural gas from exporters like the US, Qatar and Nigeria. Funds have been the most bullish on European natural gas since before the energy crisis, signaling growing concern about scarcer supplies.
“This summer will almost certainly bring a rash of debilitating heat waves, particularly in the US midsection and Europe,” said Jennifer Francis, a senior scientist at the Woodwell Climate Research Center.
Severe heat in Southeast Asia starting in April prompted traders in the region to bulk up on gas cargoes. Scorching weather also descended on Egypt, forcing the North African nation, typically an exporter, to resort to buying LNG. Sweltering conditions engulfing India are boosting demand for the fuel from the power sector, according to Petronet LNG Ltd. Chief Executive Officer Akshay Kumar Singh.
In Europe and Asia, a “perfect storm” of intense heat, hurricane-driven disruptions to US exports and worsening drought that decimates hydropower in Latin America could send gas prices soaring about 50% to 60% above current levels, analysts at Citigroup said in April.
Potential for Blackouts
Power markets face a similar risk from a demand spike. Surging temperatures across Texas are testing the state’s grid, with electricity prices for August recently rallying above $200 a megawatt-hour, the highest since 2022 for this time of year. The upside risk is huge: Prices climbed more than 800% last August amid searing heat. And the state has repeatedly teetered on the edge of widespread blackouts for the past two summers.
“When it’s bad, it’s really bad,” said Sean Kelly, chief executive officer of Amperon Holdings Inc., which forecasts electricity use for Texas and other grids.
Read more: Power Failures Threaten Large Swath of North America This Summer
In Europe, blazing heat might force some French nuclear plants — which provide about 70% of the country’s power generation — to shut. That’s because many reactors rely on rivers for cooling, and when…
Read More: Traders Are Bracing for a Record-Smashing Summer That Will Roil Commodities