Cold Blast Wreaks Havoc In U.S.: ETFs To Win & Lose

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A severe cold snap wreaked havoc in the central and southern parts of the United States, with extremely low temperatures not seen in decades and a dangerous blast of snow and ice. This has paralyzed many corners of the economy, which has just started to recover from the pandemic crisis.

The temperature in Dallas is already colder than in Anchorage, Alaska, CBS News reports. According to forecasts by the Weather Company, high temperatures in the Dallas/Fort Worth metropolitan area are expected to be below freezing from Feb 14 through Thursday, Feb 18, and reach only 35 degrees Fahrenheit (“F”) on Feb 19. The low temperature in Dallas is expected to bottom around 1 degree F. The last time temperatures dipped below 5 degrees F was 88 years ago.

The National Weather Service has issued winter and ice storm warnings for millions of Americans. It said the storm is expected to travel up the Northeast through Feb 16, bringing heavy snow, ice, and freezing temperatures.

In such a scenario, some corners of the investing area have been in the spotlight with a few expected to benefit from the extreme cold weather while a few others may lose.

Oil

The coldest weather in 30 years badly hit Texas — by far the country's largest crude producer — shutting oil refineries and forcing restrictions from natural gas pipeline operators. Oil production in Midland, the capital of the Permian basin, fell as much as one million barrels a day. According to consultant Energy Aspects Ltd., some of the biggest refineries in North America were shut down with more than 3 million barrels of daily oil-processing capacity idled amid the record-setting cold.

WTI jumped to $60 per barrel for the first time since January 2020 while Brent climbed to above $63 per barrel. As such, United States Oil Fund (USO - Free Reportand United States Brent Oil Fund (BNO - Free Reportare expected to see smooth trading this week.

USO is the most popular ETF in the oil space with an AUM of $3.3 billion. It seeks an average daily percentage change in USO’s net asset value, for any period of 30 successive valuation days, to be within plus/minus 10% of the average daily percentage change in the price of the Benchmark Oil Futures Contract over the same period. The fund has 0.73% in expense ratio.

On the other hand, BNO tracks the daily price movements of Brent crude oil on a daily basis through futures contracts. It is the near-month futures contract traded on the ICE Futures Exchange. If the near-month futures contract is within two weeks of expiration, the benchmark will be the next month contract to expire. The ETF has amassed $364.4 million in its asset base and charges 90 bps in annual fees.

Natural Gas

A blast of cold snap left millions of homes and businesses in Texas without power, leading to blackouts that are now spreading to the other states in the central United States. At least a dozen states — from New Jersey to Oregon — had reported outages, with Texas reporting more than 3.5 million, according to PowerOutage.us. The winter storm took a tool on nearly half the Texas wind power generation capacity. ERCOT estimates wind generation ranks as the second-largest source of electricity in Texas, accounting for 23% of state power supplies.

The power outages have spurred the demand for natural gas for both heating and power generation. Investors could tap the surge with the help of United States Natural Gas Fund (UNG - Free Reportand the United States 12 Month Natural Gas Fund (UNL - Free Report).

Both UNG and UNL provide direct exposure to the price of natural gas on a daily basis through futures contracts. UNG tracks the futures contract on natural gas as traded on the NYMEX while UNL reflects the daily changes in the price of natural gas delivered at the Henry Hub Louisiana. UNG is the popular ETF with AUM of $354.4 million while UNL has just $7.9 million in its asset base. From the cost point of view, the former is cheap, charging 90 bps in annual fees against 1.28% for UNG.

Transport

Freezing temperatures also prompted road closures and the cancellation of flights. About 2,280 flights within, into, and out of the United States was canceled on Feb 14 and more than 1,700 flights were called off on Feb 15, according to FlightAware.com, a flight-tracking site. Dallas and Houston have been particularly hard hit, with hundreds of cancellations each day.

The pure-play airline ETF — U.S. Global Jets ETF (JETS - Free Report— is expected to trade lower this week. It provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. The product holds 40 securities. It has gathered $2.9 billion in its asset base while charging investors 60 bps in annual fees. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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