$80 Oil and the Effect on the Marketplace, Time to Book Profits but Still Watch Energy Stocks

Price stabilization; the new key buzz word coming out of investment circles around oil futures. Consumers want it, oil companies probably not so much. Record breaking profits have become the norm at Exxon Mobil (XOM) but the average consumer will continue to feel the pinch at the pump.

OPEC, the world's oil production oversight organization, instilled an increase in production of 500,000 barrels per day in order to achieve some form of price stabilization. The fear of a sharp decline in oil stock piles has led to a continued surge in prices. Oil prices broke through a record barrier today and closed above $80.

Exxon, the largest of the "big-oil", rose another 1% to close at $88.62. Still $5 off its all time high, hinting that momentum and the market theory of "$80/share leads to $100/share" could be in full effect. Exxon stays shy of a half a trillion in market cap and with oil at these levels you have to wonder whether its just a matter of time before the company crosses that barrier. The one wild card is the Fed meeting on September 18th which could put a wrench into the spokes of this mini-recovery rally.

On the Canadian side of oil related news; Encana (TSE:ECA), Petro Canada (TSE:PCA) and Canadian Oil Sands Trust (TSE:COS.UN) are climbing back towards 52-week highs. Still a few dollars left to go for ECA and PCA but if supply fears continue to press on the market these companies will be breaking barriers left and right. They are the two prominent Gas and Oil companies the TSX has to offer. Canadian Natural Resources (TSE:CNQ) is eyeing its $78/share high after a 2.5% up day. CNQ has come far from its January lows of $53/share and as with, most of the Energy Sector in Canada it would be a great time to book some profits. For CNQ, the Alberta based oil and gas exploration play, I would like to see another pull back to the low 70s, high 60s before buying up more. This company has its headquarters in the sweet spot in Alberta's oil industry and has raised output guidance in its latest report. The anticipation of sustained greater output coupled with the rising commodity environment have spearheaded CNQ's run to its highs.

Buying into Oil at these levels I think is risky, as psychological record levels of $80 a barrel are broken. I would expect a slight pull-back in Oil prices from these levels as price stabilization comes into effect providing more workable supply numbers for the coming months. While some predict oil to reach $100 sooner rather than later, my stance would be that oil will sustain itself close to, but lower, than these records levels throughout the upcoming winter months.

Disclosure: Author is long CNQ

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.