If you’ve been paying attention to the market, a bearish list on oil and gas stocks might seem odd. Looking at two primary indicators of crude prices — West Texas Intermediate (WTI) and Brent crude oil — prices for the commodity have risen steadily in 2024. For some perspective, the WTI has risen 17% on a year-to-date basis as of last Friday and Brent crude oil 16%. Similarly, the S&P Oil & Gas Exploration & Production ETF, which holds 55 companies that explore for and produce oil and natural gas, is up more than 15% for the year as of last Friday. This further underscores the point that many oil and gas stocks are doing okay. However, there are still certain oil and gas stocks to avoid.

Ongoing geopolitical conflict in the Middle East as well as the various supply cuts OPEC initiated in 2023 are largely responsible for the global uptick in crude prices. Of course, just because most oil and gas companies are doing fine these days, does not mean there aren’t some that investors should avoid in the near term. Warning signals of an eventual stock market crash are still flashing, especially as the Federal Reserve keeps the Federal Funds rate elevated and as U.S. equities trade at frothy multiples. If a crash is imminent, these are the three oil and gas stocks to avoid.

ExxonMobil (XOM)

ExxonMobil (NYSE:XOM) is one of the most prolific (and infamous) oil and gas companies in the United States. The vertically integrated behemoth does everything from exploration, production, refining and marketing of a variety of oil and gas products. The oil giant is not only diversified in terms of its vertical integration but also geographically. The South American country Guyana has popped up in market news about crude oil and for good reason. The country has 11 billion barrels of oil reserves underneath its coast, and ExxonMobil has done well to take advantage of it. The company boasts on its website that, “ExxonMobil Guyana is the first and largest oil producer in Guyana.”

Geographically diversification is important especially when we’re discussing non-renewable resources. However, not everything is going well for ExxonMobil. In its first quarter earnings report, net income declined 28% due to falling natural gas prices and compressed margins in Exxon’s refinery business. A stock like ExxonMobil is lucrative investment if its generating large sums of net income for shareholders. If natural gas prices continue to slip, which is possible if the U.S. economy continues to slowdown, then Exxon’s attractiveness as an equity investment fades away.

Philips 66 (PSX)

Philips 66 (NYSE:PSX) is a diversified oil and chemicals behemoth. The company mainly operates a midstream oil business, which helps to transport crude oil and deliver refined oil products to the market. The company’s chemicals business produces and sells a variety of chemicals that miners and drillers leverage in its operations. Having a diversified business has helped Philips 66 to generate billions in net income. In 2023, Philips 66 generated over $7 billion in net income.

Unfortunately, similar to ExxonMobil, Philips 66 has run into some profitability issues in 2024. Philips 66 first quarter earnings delivered $748 million of non-adjusted net income. This figure is nearly 3 times smaller than the $1.9 billion Philips 66 had reported in Q1’2023. The company’s midstream and refining segments took the most hits in terms of margin and earnings, while its chemicals segment grew earnings modestly year-over-year.

Investors are clearly not happy with the results, as Philips 66’s stock has continued to trend sharply downward since then. Again, oil and gas stocks that are making less profits than it was in prior periods are probably better to avoid, particularly during times of market volatility.

Recon Technology (RCON)

Recon Technology (NASDAQ:RCON) is a penny stock that investors should avoid getting their money stuck in. Founded in 2009, Recon develops onsite petroleum mining equipment and software. Being a capital-intensive business, margins is everything and Recon Technology has managed to miss the mark. While 2022 was a good year for the petroleum mining equipment firm’s net income, as it was for many firms in the oil and gas sector, 2023 saw both revenue growth and margins significantly compress.

Investors could probably expect underwhelming margins for some time. The oil and gas market may start to cool, and the petroleum mining equipment sector is full of capable firms that have better financial figures. Not to mention, while penny stocks can make a good volatility play, the lack of liquidity coupled with the crumbling fundamentals of Recon’s business do not make any kind of bet on this stock enticing.

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.