A Look at Energy with Oil racing back to $60

Oil, like many investment vehicles had been battered along the hard road from peaks in 2007 nearing $150. The fall in fact, had been so dramatic that prices for the commodity were down to $34 a barrel in February of this year. Set against the backdrop of American economic problems and the ongoing 'Carpocalypse' the slide in oil is completely understood.

However, of late, things are changing, and with a resurgence of market participation in the last 2 months, oil has enjoyed a steady climb and has now almost doubled off its lows. The traditional American big oil names have held steady as Exxon Mobil (XOM) is down 5% in the last 3 months, and up 1% in the last month, while competitor Chevron (CVX) has been virtually flat for 3 months. Nothing to light the socks off in any portfolio. These big names, which have enjoyed such outlandish record profits in recent years are being propped by their cash and their dividend payments, but none of that spells growth during a bullish run on the markets in this still economic-headline driven marketplace.

What has been making noise have been the smaller players. In the oil and energy business, small is of course relative. ConocoPhillips (COP), which reported recently an 80% year over year drop in profit has risen 12% in the last month, including a 4% pop on earnings day and its S&P rating of Strong Buy. Not to be outdone, Haliburton (HAL) has rallied strongly with a 34% gain in the same single month time frame.

In Canadian markets the big story of late was the deal stuck by Suncor (TSE:SU) to purchase Petro Canada (TSE:PCA) in a stock deal worth approximately $15Billion. On the news of the deal, Suncor stock fell but has since rallied back to the $35 level, which is about 6% higher than pre-deal prices. Petro-Canada, being the takeover target has consistently rallied from $30 to its current levels of $45/share. Who says M&A activity is dead?

Shifting to the drillers and the market has seen a similar story. Bigger Transocean (RIG), being outgained by smaller Nabors Industries (NBR). Despite estimate-topping earnings and a buy recommendation from Citigroup, RIG has performed only admirably when compared to gains from its smaller counterpart. Rig is higher by 22% and 10% in the 3-month and 1-month periods, while Nabors has shown gains of 59% and 40% in those same periods.

While the smaller players may have risen faster with the market ramp-up, Investors shouldn't let themselves get carried away, and take some energy-related profits when they present themselves. Headlines are already starting to change from a tone of "Go Bullish Rally" to "Is It a Suckers Rally" and it may just be that over the next couple of months the staple behemoths of the Energy industry will make the safest investments.

Disclosure: Author owns NBR, SU, recently sold PCA

Market Musings: Oil Records, Interest Rate Uncertainty put Market on Edge

As North American Markets rallied today oil prices soared towards record highs on fears that OPEC would be unable to meet demand. Oil approached records of around $78/barrel as investors bought up these futures into the winter season, expecting diminished oil supply numbers from the US.

Before you run off to buy Exxon Mobil (XOM) or Chevron (CVX), it's important to note that these mega-oils already saw around 2% gains today and stand close to 52-week highs. OPEC, the world oil production policy maker announced that it would increase production by 500,000 barrels per day to help ease prices. The general fear of market uncertainty due to the US Credit situation is putting the world economy on notice and forcing policy making organizations to take steps to control pricing of various goods. The news of the production ramp sent oil futures back to the $77/barrel range.

The recent US jobs number came in drastically softer than expected as payrolls were actually cut. Analysts expected a drop in jobs but not a complete loss. This data however, carried forward the notion that the Fed must act on Interest Rates at its next meeting later in September.

I would be cautious up to this meeting because the market's resilient rally here is based on the fact that the Fed will in fact cut rates by .25 or .50%. This is a key decision for the Fed as it balances a seemingly US strong economy and a disaster situation with credit that threatens to spill over into all consumer segments. Investors need to be cautious through the next week and beyond as the markets seek to establish a direction while waiting for the Federal Reserve to make its policy announcement. With the market having priced in a 25 basis point rate cut (.25%) and now working to price in a cut of 50 basis points (.50%) investors need to understand the upcoming risks. If action by the Fed is limited it would spark a sell off that could see the Dow back into the high 12000s.

If the Fed provides further relief for the markets, come the September meeting, we could be off to the races for the annual Santa Rally starting as soon as October. Technology companies making those must-have items such as Apple's (AAPL) iPod & iPhone, Nintendo's (NTDOY) Wii and Sony's (SNE) PS3 stand the most to gain, as would Internet advertising giant Google (GOOG), and auction house pioneer Ebay (EBAY). High growth will be the name of the game for the end of the year provided the expected relief comes by way of Bernanke and the Federal Reserve.

Disclosure: Author is long APPL, GOOG and does not own any of the other companies mentioned.