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

$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