The Block Traders' Oil & Gold Monitor is a unique newsletter that focuses on big block trading activity by institutional buyers. Through a sophisticated analysis of market maker hedge positions, editor Peter Way determines forecasted gains for specific sectors and stocks. Here, he looks at some current market maker favorites in the oil & gas industry.

Peter Way explains, "The reality for crude oil price expectations are reflected by hedging on some $85 billion of crude oil future contracts. Every month in 2008 sees enough likelihood of prices at $80 and above to cause a brisk business in insurance at those levels. In short, the crude oil price picture is one of stability to strength from high levels. As with any natural resource, it's always safer to bet on shortage than oversupply."

Looking at big market maker activity in individual stocks and stocks, the advisor adds, "The value buildup in Exploration & Production companies is clearly already under way and is likely to continue. Expect to see E&P companies acquired by the major integrated companies. Expect to see Oilfield Services companies kept very busy as supply continuity issues grow more severe."

In his Block Traders Oil & Gold Monitor, advisor Peter Way follows hedge fund and block traders to find stocks with the best prospects.

He explains, "When we look at the guys hedging trades in crude oil futures, it tells us they see far more upside for crude than downside."

Meanwhile, he adds, it looks like the oilpatch stocks should continue in a favorable environment. He notes that many attractive investment prospects are to be found in the smaller independent oil exploration and production (E&P) stocks.

The advisor explains, "These are typically companies that have their own reserves in the ground, and benefit from the industry's supply/demand imbalance situation like the majors. They may acquire each other or be acquired by major producers as the need for and value of reserves becomes even more obvious and pressing in the future."

Among those that appear to have better potential, he believes, are Holly Corp. (NYSE: HOC), along with Tesoro (NYSE: TSO). He observes that both are benefiting from a long-term inadequacy of refining capacity in the US.

Peter Way adds, "Their current value is not in reserves, but in a fattening of profit margins in the process chain from upstream operations (reserves and extraction) to downstream (refining and distribution)."

Overall, he notes, "Given the worldwide energy reserves shortage and the high crude and natural gas prices it engenders, this fattening is not likely to be a temporary condition."

Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.