What Impact Could The Current Energy Crisis Have On The Stock Market?

October 15, 2021

Over the past few weeks, the global energy crisis has been headlining across all news outlets. Wholesale gas prices have surged by 250% since the beginning of 2021, and 70% since August. This is driving up the price of electricity, as over 40% of the UK’s electricity is still created in gas-powered plants.

Not only is this hitting the nation’s winter fuel bill, but it’s also set to have knock-on effects across the entire stock market.

Good Days For Gas Investors

Most obviously, the energy crisis is affecting energy stocks the most.

Multiple energy providers in the UK have gone bust in recent months, which could make investors feel hesitant to invest in smaller providers who might be in danger of following a similar fate.

However, the rising price of gas and fossil fuels has led to sharp rises in other parts of the market, as investors correctly guess that diminished supply means higher demand. BP (LON: BP) share price has risen by over 7.5% in the past month, while Shell (LON: RDSA) has risen by over 7%.

Ripple Effects

It’s not all good news, though.

The energy crisis, if it continues, could have a lasting impact on other markets. If homeowners think they are feeling the pinch of gas price rises, consider just how hard businesses across the UK will be hit.

Supermarkets are predicting food shortages before Christmas as a result of the shortage of CO2, which is used to carbonate fizzy drinks and preserve meats; two staples of the British festive diet.

Whether stocks like Sainsbury’s (LON: SBRY) or Tesco (LON: TSCO) will be hit by this uncertainty has yet to be seen, though it’s likely that any potential price falls caused by temporary shortages will be equally temporary, making this a great opportunity for investors looking to make quick gains.

The increased cost of energy might also have knock-on effects across other industries, including manufacturing, as the cost of running machinery and lighting increases.

Whether these extra costs are passed on to the consumer by way of inflation or are taken on by individual companies will affect not just individual stocks but the health of the global economy over the coming years.