Downside risk for stocks in the current market environment can be mitigated by buying stocks that will do well due to the continued closure of the Channel and potential damage to energy infrastructure.
President Trump threatens to attack civilian facilities in Iran if no deal is reached
Iran attacks a full Kuwaiti crude oil tanker off the coast of Dubai, despite the president’s threats.
With the conflict in the Persian Gulf still ongoing, it’s a good idea to purchase some protection in your portfolio in case the conflict becomes prolonged, or even relatively short-lived, causes lasting structural damage to pre-conflict economic activity.
With that in mind, here’s a whistleblower tour of 10 stocks that can help investors in the current environment.
3 oil stocks that could benefit if oil prices rise further
It’s hard not to think of Captain Obvious here, but a good place to start is with oil and gas exploration and production companies, especially those operating in the United States such as Devon Energy, which focuses on the Permian Basin. (NYSE:DVN) and Diamondback Energy (NASDAQ: FANG). These two companies are not only attractive as tactical tools to manage the risk of high oil prices. They also look very valuable based on pre-conflict oil prices.
The third is Chevron, a major integrated company. (NYSE:CVX). Upstream operations (exploration and production) have benefited from higher oil prices, while downstream operations (refining) have also benefited from widening crack spreads (the difference between crude oil prices and refined product prices) due to poor access to crude oil and refined product shortages for Asian refiners.
petroleum product refiner
Speaking of crack spreads, the most widely followed is the 3-2-1 spread (the spread between the prices of three barrels of oil, two barrels of gasoline, and one barrel of diesel), which has grown from less than $20 at the beginning of the year to just over $54 today.
That’s good news for refiners like Valero Energy. (NYSE:VLO) and PBF energy (NYSE:PBF), They get their oil from the US regardless of price. The latter is more of a pure refiner (Valero also has renewable diesel and ethanol businesses), and PBF is outperforming the market. As long as crack spreads remain wide and high prices do not destroy demand for transportation products (such as gasoline), these stocks are likely to outperform.
Don’t forget liquefied natural gas (LNG)
According to the International Energy Agency (IEA), 34% of the world’s crude oil trade passes through the Strait of Hormuz, and 20% of the world’s LNG trade also passes through the Strait of Hormuz. Almost 90% of the LNG volume that passes through the strait goes to Asia, with the remainder going to Europe. And even if the strait opens, LNG may take longer to recover than oil, especially if Qatar’s Ras Laffan, the world’s largest LNG export facility, continues to suffer damage.
Three companies that can help fill the LNG supply shortage caused by the strait blockade. woodside energy group (New York Stock Exchange:WDS) is an Australian LNG producer (4.5% dividend yield, US listed) ideally placed to supply LNG to Asian markets.
cheniere energy (NYSE:LNG) Already the largest exporter of LNG in the United States, it is currently operating at maximum capacity and is in the process of expanding its export capacity over the next few years with new LNG trains expected to ramp up production soon.
The third LNG (and crude oil) operation is Norway’s Equinor (New York Stock Exchange: EQNR)is a major LNG exporter with assets offshore Norway. This will help fill the gap for European countries that previously supplied LNG through the Strait.
transport and fertilizer
Speaking of Norway and LNG, shipping company Flex LNG (NYSE: FLNG) The company is also well-positioned to benefit from rising LNG shipping rates and demand for a modern, fuel-efficient fleet. If LNG cannot reach Asia through the Straits, it will likely be transported much longer distances, which is good news for shipping companies, daily rates and fleet utilization.
Finally, it’s not just crude oil, LNG, and refined petroleum products that pass through the Strait. According to the United Nations, about a third of the world’s ocean fertilizer flows through the straits. Gas is the main ingredient in fertilizer, and the lack of gas and fertilizer passing through the Strait has forced U.S.-focused fertilizer producers like CF Industries to (NYSE:CF) Will benefit from Western manufacturing facilities and gas supplies from the US
Lee Samaha has no position in any stocks mentioned. The Motley Fool has a position in and recommends Cheniere Energy and Chevron. The Motley Fool recommends Equinor Asa. The Motley Fool has a disclosure policy.
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