Another year, another hurricane season in the United States. Hurricanes typically develop out in the Atlantic Ocean and make their way to the Gulf of Mexico and the United States’ east coast regions. While this is a fairly regular phenomenon, that doesn’t mean investors shouldn’t avoid certain kinds of stocks. Energy stocks, in particular, could be at risk of having their operations disrupted or assets damaged by a harsh hurricane. Global oil prices are already set to experience softening in the latter half of 2024. Economic activity is slowing down on a global scale due to elevated interest rates, and, in turn, demand for oil worldwide will suffer.
These are just some of the reasons to avoid the three energy stocks below.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) is already feeling the bite of dropping oil and natural gas prices. The oil and gas giant’s first-quarter earnings report saw net income decline by 28% due not only to plummeting natural gas prices but also tighter margins in the firm’s downstream refinery business. Beyond just exposure to the risks of falling oil prices, Exxon Mobil’s refinery assets could also be in danger during this year’s hurricane season.
Way back in 2017, Hurricane Harvey inflicted major damage on the states of Texas and Louisiana. Exxon Mobil’s Baytown, Texas refinery, the second largest in the U.S., shut down after receiving significant damage from the hurricane. It’s not unreasonable to think Exxon could find itself in a similar predicament in 2024.
XOM shares have risen nearly 20% this year, but the stock could begin to slide as more of the risks materialize.
BP (BP)
BP (NYSE:BP) was thrust into the news in 2010 after a devasting oil spill not only killed 11 people and injured more, but also negatively impacted the Gulf of Mexico’s climate for years. During the days of the oil spill, hurricane season presented a number of risks, especially to rigs that were still in operation as well as to the clean-up operation. The U.K.-based oil giant still operates a number of offshore drilling assets in the Gulf of Mexico. The state of Louisiana also serves as a hub for transporting personnel and supplies to offshore assets and back. There is no doubt BP faces an immense hurricane risk.
Despite these hurricane risks, there are other reasons to consider dumping BP stock. The oil and gas market, as articulated above, is likely to face falling price pressure as global demand wanes. Moreover, BP’s stock price has risen only about 8.54% on a year-to-date basis, which doesn’t leave a whole lot to get excited about.
Valero Energy (VLO)
Valero Energy (NYSE:VLO) manufactures and develops petroleum-based and low-carbon transportation fuels and petrochemical products in the United States and abroad. While the company manages a plethora of real assets globally, the company also has a particular exposure to the Gulf of Mexico. Valero operates a refinery facility at Port Arthur, Texas. This facility processes feedstocks into gasoline, diesel and jet fuel, and produces 395,000 barrels a day. The refinery also happens to be in close proximity to the Gulf shoreline. A devastating hurricane season will not only halt production but could severely damage the refinery itself.
Similarly, Valero owns a refinery in St. Charles Parish, Louisiana that produces about 340,000 barrels of crude oil and is located on the Gulf of Mexico.
These geographically risks could severely affect VLO stock once hurricane season arrives.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.