You can tell the oil market's in rough shape when companies are drilling more to pull in smaller profits. This is the situation in which Halliburton (NYSE: HAL) finds itself, with lower energy prices pushing down the cash that comes through the door.

So, its revenue was up for the most recent quarter, but earnings were down. The $262 million that came to the bottom line is 61% lower than the profit for the same quarter the year before.

This morning, oil firm Halliburton (NYSE:HAL) posted second-quarter earnings and a warning about North American natural gas markets. First things first, HAL reported second-quarter earnings of 30 cents per share (excluding a $12-million charge stemming from job cuts). While these results were far worse than the 55 cents per share the company earned a year ago, they still managed to top the consensus estimate by four cents per share. The situation was the same for quarterly revenue, which fell to $3.49 billion (from $4.49 billion a year ago) but still managed to outpace the Street's expectations - which called for $3.41 billion.

Yesterday, Bank of America Merrill Lynch decided to up its rating on Anadarko Petroleum (NYSE: APC) to "buy" from "neutral" and raised the company's price target to $57 per share from $52 per share. The main reason for the upgrade was the company's success in raising $1.3 billion in a stock offering.

In my opinion, this is a rather bold move, mainly based on the target price for the stock. Perhaps the company does have a solid balance sheet, but it also faces some rather staunch resistance. The stock is hovering in the $41 region and is positioned beneath its 10-, 20-, and 50-unit weekly and monthly moving averages.

Oil prices have dropped a bit this morning, challenging support at the $70 level, due mainly to what some call "mixed signals" about the U.S. economy. The black gold has backed off as data pointed to the fact that the U.S. economy is still weak, even if it is emerging from the recession.

On Tuesday, the Federal Reserve announced that industrial production dropped more than expected during May, which has triggered the new weakness in the oil patch. Crude prices have also felt the sting of the market's early week weakness as the Dow Jones Industrial Average has backed off from its recent rally. In addition, the dollar has played an important part in crude prices. A weak dollar leads to higher oil prices as commodities are considered a safe-haven investment against a weak dollar.

Is there a big commodities rally underway? Let's look at the numbers:

• The Commodity Research Bureau index (CRB) of 19 energy, metal and agricultural prices gained 14%, the most since 1974
• Gasoline soared 30% in May
• Gold and copper also surged
• Corn and soybeans reached their highest levels since last September
• Crude oil has jumped 29%, the most since 1999
• Gasoline futures for June delivery surged 31%, the most since 2006
• Cotton futures were up
• Gold is at $980.00 per ounce
• Silver posted the biggest monthly gain in 22 years

So you are probably asking: What is fueling this rally?

While I was not a finance major in college, I do know a few things about supply and demand. If there is ample supply and lower demand, prices should be low. If there is limited supply and high demand, prices should be high. I guess oil investors never really studied supply and demand economics.

Black gold is higher in European trading, as investors believe that the U.S. recession may have bottomed. Such a bottom could signal rising demand, which is enough for beleaguered black gold investors. In fact, Gerard Rigby from Fuel First Consulting in Sydney, Australia, noted, "The feeling is we've seen the worst of it, and the only way now is up . . . Some of this is also a trading momentum play."

Chevron (NYSE: CVX - option chain) stock is falling today after the company warned Thursday after market close that its first-quarter earnings will be lower than previous quarters, due to a weaker dollar and lower oil prices during the period. CVX reports earnings on May 1. Also, not helping are crude oil futures, which are sliding by more than 5% on the session after the International Energy Agency forecast slowing demand. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on CVX.

This morning, CVX opened at $67.45. So far today the stock has hit a low of $66.52 and a high of $67.74. As of 11:40, CVX is trading at $67.17, down $2.06 (-3.0%). The chart for CVX looks bullish and S&P gives CVX a positive 5 STARS (out of 5) strong buy ranking.

What is going to happen with crude? Two sessions ago, black gold dropped 7% to trade in the $35 region. Yesterday, crude hovered near break even. Today, we have the weekly crude inventory report -- which should have a modicum of impact on crude's price.

What I find interesting is the fact that we haven't seen the relief at the pump yet. I know that the Cushing, OK reserve is fully stocked and some of the crude sent to the stations is still from a time when black gold was worth more. But we have to be getting close to the $35-per-barrel stuff, right? I know right now I pay roughly $2 per gallon -- and I know, I should quit whining, but still....

For those that had the fortitude to pull the trigger, shorting crude back in early July when all the perfect storm conditions for $200 per barrel oil were on the horizon ... and had the stones to stay with that trade ... made a killing.

This is one of the greatest reversals for any major market of any kind that has ever occurred. And it clearly shows how the crude oil market was being manipulated by speculators and hedge funds.

The impact was fatal for hundreds of small airlines and small- to medium-sized trucking companies, along with thousands of other companies that didn't hedge against the price explosion in energy.

The price of crude, which topped out at $147 per barrel in July 2008, crashed to $35 per barrel by Dec. 18 -- a 76% haircut -- before getting a bid that got the price back above $40 on the eye-popping headline that OPEC would slash daily production by 4.2 million barrels.

This oil trade takes the cake.

At the zenith of the speculative bubble in the oil patch -- when crude hit $147 per barrel in July -- you had everyone from T. Boone Pickens to Prince Alaweed touting $200-per-barrel oil by the end of the year.

Crude is now trading around $40 -- down $107 per barrel in less than six months. Unbelievable!

And this latest drop comes after OPEC voted to cut daily production by an eye-popping 4.2 billion barrels per day.

Looks like the world is awash in crude oil.

Needless to say, those euphoric longs in the oil stocks got destroyed. Most energy stocks lost 50% to 70% of their value during the course of the sell-off in crude.

And remember those television commercials with T. Boone and Chesapeake Energy (NYSE: CHK) CEO Aubrey McClendon pushing for the expansion of natural gas?

Well, natural gas prices are down 60% from their mid-year highs.

If you put money into T. Boone's Clean Energy Fuels Corp. (NASDAQ: CLNE) as recently as September, when the stock was trading at $20, you now own Mr. Pickens' vision for $5.

This post was written by Minyanville contributor Adam Warner:

Smarter minds than yours truly have noted that the oil ETF United States Oil Fund (AMEX: USO) is not the best bullish play on crude here. My understanding of the product is that USO owns futures, and must roll each cycle. And right now oil is in deep contango, which always sounds pornographic but actually just refers to the fact that there's a particularly steep and upward sloped curve in the futures as you go out in time.

I'll take their word for the contango part, but I'm not entirely sure why that necessarily will knock down USO. They'll roll when they roll, and even if the spread is wide, won't it then just depend on what happens in the next month AFTER the roll? I'm thinking out loud here, so if anyone has something enlightening to add on this topic, I am all ears.

I sold and am selling more Nov. puts anyway, so it should not matter a great deal from my standpoint. And I'm not sure I really have a great alternative if I want to do something bullish in oil options.

I don't trade futures or futures options, and as far as pure oil there's Super Double Ultra Octane Special (AMEX: DBO), which does not have liquid options.

There's also Ultra Oil & Gas ProShares (AMEX: DIG) and UltraShort Oil & Gas ProShares (AMEX: DUG), but those track energy stocks.

Minyanville Founder and CEO Todd Harrison dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.

Holy cow, can it be any slower out there? I'm taking a break from trying to set the all-time record for meetings on a "slow" summah Friday to offer a quick take on a few topics.

Will Lehman Brothers Holdings Inc. (NYSE: LEH) get married over the weekend?

• There hasn't been any price talk on Lehman so even if it happens, it's a bit of a crap shoot. Remember Minyans, Bear Stearns was taken over too.
  
  
• There is no doubt franchise value and a lot of smart people at Lehman. There's also a lot of baggage on their balance sheet. It -- like most of the financials -- is a double-edged sword.

With crude oil trading down to $126 a barrel, though some are still touting the price is moving to $200, or even $300 a barrel, it actually looks more like it is heading to at least $100 barrel. With growing sentiment in Congress, even among mainstream Democrats, to accept President Bush's proposal to do more drilling, the market has taken this as a signal that the government is serious about taking action to bring down prices at the pump. If the Democratic leadership would get on board, the current drop in crude prices would be nothing compared to what could happen.

Coupled with projected slower growth in emerging markets, most notably China, where we could see GDP growth slow by more than 2%, why should the price keep moving higher?

it's important to note that the decline we have witnessed over the last few weeks should result in a drop of over 50 cents a gallon at the pump. Coupled with people driving less, thus easing the demand, the increased supply, or the potential of increased supply on the market should help keep prices moving down.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/23/08.

Editor's Note: This post was written by Terry Woo, one of Minyanville's sharpest minds AND/OR brightest bulbs. For more perspective AND/OR insight, visit www.minyanville.com.

Crude oil is trading lower for a third day in a row.

Currently there's talk out there of demand destruction in other countries (i.e. China's slowing economic growth and slowing U.S. economy). But I don't think there has been enough coverage on financial television regarding Iran.

Remember crude's breakout when the world speculated Israel was preparing to attack Iran's nuclear facilities. And remember more upward pressure when Iran retaliated by test firing its long-range missiles.

As reported by CNN yesterday, Undersecretary of State William Burns is accompanying an EU delegation and will meet with a top Iranian nuclear official... something that hasn't happened in decades! It's a game changing event. That combined with North Korea (cooperating with the world in giving up its pursuit of nuclear weapons), I believe this is simply the Iranian risk premium being taken out of the price of oil.

With the 4th of July approaching, it's always a good time to get a bit of perspective and take a look at what may happen in the second half of the year. As with predictions they generally tend to never come true, but here are 3 market predictions for the 2nd half of the year.

1- Crude oil will trade down under $100/barrel. As global growth continues to slow, especially in overheated emerging markets, some of the the speculative froth will leave the market and the price will start heading down to a point more in line with fundamentals.

2- The US Dollar will rally against the Euro, and reach a level of 1.42 by the end of December, down from the 1.58 current levels. With European growth expected to potentially contract by more than 1% in the coming quarters, and the US staying out of recession, the market will re-focus on growth differentials in the for-ex markets, providing some much needed strength for the greenback.