Forbes Article by BetterTrades

01-15-09 12:14 PM EST

Cheap Crude Sinks Energy Sector

Short interest is through the roof, and the charts are starting to look ugly in the oil patch.

After oil hit an all-time high of $147/bbl in the summer of 2008, the global recession sent the energy patch spiraling back to reality. Unfortunately for energy stocks, they rode oil prices lower as well.

The global recession has forced most equity prices to unwind amidst a global climate of deleveraging and devaluation. Deflation ushered in a short interest surge for hard commodities like oil, natural gas, and heating oil along with the companies that control these resources.

Stocks in the energy sector that we focus on include Exxon, BP, Royal Dutch Shell, Halliburton, Sunoco, Chevron, and ConocoPhillips.

When oil stabilizes, so will the energy patch. In fact, when the economy rebounds and equity prices reflate, commodities like oil will likely lead a surge of inflation. Governments around the world have committed to quantitative easing, putting long-term inflation in the pipeline. But while the global economy flounders, softness in the energy sector seems a strong probability.

Forbes Article by BetterTrades