Delta Air Lines (DAL - option chain) stock is trading lower today along with other airlines this morning, hurt by rising oil futures. Oil futures shot up over 7% this morning in response to growing political turmoil in Libya. Libya is the largest oil producer in North Africa, and is responsible for 2% of global daily output. 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 DAL.

This morning, DAL opened at $10.99. So far today the stock has hit a high of $10.99 and a low of $10.59. As of 12:35, DAL is trading at $10.65, down $0.85 (-7.3%). The chart for DAL looks bullish and S&P gives DAL a positive 4 STARS (out of 5) buy ranking.

Marc Faber, who writes the Gloom Boom & Doom Report newsletter, has a flare for the dramatic. He once recommended framing a $100 U.S. bond to teach our children a lesson about the perils of inflation. But he has made some good calls over the years, such as to dump stocks a week before the October 1987 crash. He even shorted stocks in 1999 (it was a bit early) and went bearish before the crash of 2008.

Interestingly enough, Faber is actually getting optimistic, especially about the U.S. and Europe (this is according to an interview on CNBC). He likes the traction in the economies. In fact, it does look like the global economic recovery is a reality.

Oil futures furthered their losses Wedsneday morning after data showed unexpected inventory gains during the past week. Late Tuesday, the American Petroleum Institute (API) announced that crude inventories increased by 3.69 million barrels and that gasoline inventories increased by 810,000 barrels. Expectations called for a decline of 1.5 million barrels in crude and 500,000 barrels in gasoline. This news caused a drop in crude futures, as concerns over heavy supply and weak demand started to surface.

Oil plummeted $4.26 to $75.63 per barrel on Thursday in near-panic fashion amid concerns of Europe's debt woes. The huge drop provides more evidence that the oil futures market should be reformed.

Currently, the oil market, like other commodities, is dominated by traders -- that is, by players who have no interest in taking possession of oil or in hedging the cost of oil used in their operations.

Last night was President Obama's first State of the Union address. Already, the oil market is benefiting from the speech, as it gave a sense of optimism for the economy, according to some analysts. That is, if you can call a 23-cent jump in futures a benefit.

The speech stressed job creation and the belief that the worst of the economic crisis is over, which has trickled over to investors (and who said trickle-down economics don't work?). Combine last night's Presidential address with the Federal Reserve's decision to leave monetary policy unchanged and you have the makings of a temporary bump for the market.

About one year after the Lehman bankruptcy, we are getting rumors of more impending bankruptcies, this time from China.

The problem started last year when the price of oil dropped from $147 to $32 per barrel. Many companies use the futures markets to hedge their buying of oil. When prices skyrocket, they get scared and buy futures contracts for future delivery to lock in a price and to be assured of getting the product. So, some companies were buying oil at the height of the market last year. Companies that place hedges usually leave them on until delivery. What happened was that when the price of oil collapsed, these companies were still holding high-priced contracts. They saw the price plummet and took horrendous losses.

There are many factors that affect oil prices. Fundamental factors such as global supply and demand and dollar moves are often cited. But many also say that traders play a big role in affecting oil prices fluctuations. No doubt, fundamentals are behind oil's long-term uptrend. And it is the dollar's weakness of the past few years that has supported the trend. But short term? Could traders' short covering be the reason behind oil's recent run-up to nearly $150 a barrel?

Perhaps, but that's behind us. Oil prices have retreated more than $20 dollars since. What caused that? Have the fundamentals changed? Some say global demand is bound to slow as the global economy weakens, but others say supply concerns due to geopolitical unrest are also growing. Has the dollar strengthened? A little, but then it declined right back Thursday after a housing report showed recovery is still far off. And what about traders?

Well, here's where The Wall Street Journal as well as Reuters bring an interesting theory. They say that the rise and fall in oil prices coincided with energy company SemGroup L.P.'s (mis)fortunes. SemGroup is a little known private company that transports, stores and distributes crude oil and refined products. It is also the parent of pipeline operator SemGroup Energy Partners L.P. (NADSAQ: SGLP). SemGroup L.P. filed for Chapter 11 bankruptcy protection Tuesday. According to the Journal, "Changes in its hedging strategies coincided with big moves in oil recently."

Fed Chairman Ben Bernanke was in Massachusetts on Monday, speaking at a conference, according to this article. As you can imagine, he had some things to say about the economy. Believe it or not, they were actually encouraging, and it should cause many to feel at least a little more comfortable, even though the world appears to be ending thanks to really expensive oil futures. In fact, if Bernanke is to be believed, we don't have a lot to worry about.

Well, we do have to worry about a few things, but Bernanke believes that a "substantial downfall" in the economy is not as guaranteed as recent market action has suggested. I'm not sure if he's correct about this. With gas prices hitting a record of an average $4 per gallon, the psychological fallout is going to be immense. Add to that the recent employment data, and the economy seems to have found a wonderful recipe for disaster. But what I like about Bernanke's comments is that they too can hold psychological sway. He believes that the net outlook isn't any worse than before, and many observers suspect that he is done lowering rates. While some might look upon that stance as a harbinger of positive tidings, I think we have to remember that Bernanke's hands are tied right now, and that he has been put in a damned-if-you-do-damned-if-you-don't scenario. If he drops rates any further, then the dollar becomes less valuable on a global basis and inflation becomes increasingly problematic. If he pauses, then what about growth? It all goes back to oil and the dreaded specter of stagflation.

The "Totally Informal Economics Roundtable" (TIER) met this week. Readers of this space know that the esteemed Roundtable achieves a quorum whenever yours truly and my three astute economist friends from graduate school convene to discuss matters economic... or to celebrate the birthday of one our school-age children.

This week's the topic was oil's remarkable 4-year run to $135 per barrel.

The TIER agreed that, yes, speculators, traders, hedge funds, and other institutional investors had driven oil to a 'bubble' price or level -- but not due to any conspiracy or coordinated effort to push prices higher.

Rather, the TIER agreed that speculators bought oil futures and other oil instruments: because a) they believe the price of oil is headed higher, and/or b) they believe they'll benefit in some way from an oil-long position.

U.S. regulators Friday disclosed a broad nationwide investigation into potential oil-market manipulation and said they are expanding surveillance of energy markets, The Wall Street Journal reported Friday.

The Commodity Futures Trading Commission announcement of an ongoing and widening inquiry occurs amid a 4-year rise in crude oil prices in which gasoline, diesel, and heating oil prices hit record highs, Reuters reported Friday.

Oil closed Friday up 73 cents to $127.35 per barrel. Oil has risen about 100% in the past 12 months.

Many Congressional officials and consumer groups have been arguing for a systematic investigation into futures prices, asserting that institutional investors and other speculators have manipulated oil prices and driven them "artificially higher."

Others, including economists and oil executives, argue that the price increases have more to do with the sector's bullish fundamentals, including inadequate crude oil production growth amid rising demand.

Oil Analysis: Strong evidence suggests that the bulk of oil's 4-year bullish run is rooted in fundamentals, with the reduction in the global safety cushion -- the spare oil between daily global oil supply and demand -- accounting for today's near-record oil prices. Still, that's not to say a rigorous inquiry would not yield compelling data or new insights. One area of interest that the inquiry will explore: whether oil storage operators have issued misleading information about oil in their tanks to profit from oil trades, Reuters reported Friday.

Billionaire investor George Soros said speculators are playing a major role in oil's record price rise. He also argued that the sky-high $130 per barrel price looks like a bubble, The Daily Telegraph reported Tuesday.

Soros said "speculation . . . is increasingly affecting the price" and that oil now has "this parabolic shape which is characteristic of bubbles." However, he qualified his remarks by stating that the bubble would not burst "until both the U.S. and Britain were in recession, after which prices could fall dramatically."

Oil fell about $2 to $130.12 per barrel in mid-day Tuesday trading after data showed Americans are cutting back their gasoline consumption amid record-high gasoline prices approaching $4 per gallon in several regions of the country, Bloomberg News reported. U.S. gasoline consumption has fallen for about fourth straight months, on a year-over-year basis, according to U.S. Department of Energy data. Oil is up 100% in the past 12 months, and about 480% since 2002.

Crude oil fell below $114 Wednesday after a U.S. Energy Information Administration report (pdf) indicated weekly oil inventories rose more than double forecast.

U.S. oil inventories increased 3.8 million barrels for the week ending April, 25, 2008. Economists surveyed by Bloomberg News had expected a 1.9 million barrel increase.

Oil fell $1.78 to $113.85 per barrel Wednesday at mid-day, after trading above $116 earlier in the session. The other major energy commodities also fell at mid-day. Heating oil declined about 3 cents to $3.21 per gallon, unleaded gasoline fell 2 cents to $2.92 per gallon, and natural gas declined dropped about 9 cents to $10.76 per million BTUs.

Discussion in financial and public policy circles appears to building regarding increased monitoring of energy markets, as well as, at minimum, inquiries into whether oil prices have been manipulated.

One group, closetheenronloophole.com - - a coalition of oil dealers (the people who deliver heating oil in trucks, etc.) and other groups - - argues that certain unregulated energy trading platforms provide an environment for what the group calls "excessive speculation and energy price manipulation."

Capitol Hill

In Washington, several lawmakers have requested inquiries of the energy markets. Among them are U.S. Senators Maria Cantwell (D-Washingotn), Dianne Feinstein (D-California), and Ron Wyden (D-Oregon), who sent a letter to the chairmen of the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC) giving them 45 days "to develop a plan to deliver effective oversight for energy markets and implement anti- manipulation provisions."

AMR Corporation (NYSE: AMR) opened at $25.60. So far today the stock has hit a low of $25.60 and a high of $26.80. As of 2:15, AMR is trading at $26.53, up $1.15 (4.5%).

After hitting a one year high of $41.00 in January, the stock has trickled downward over the past four months. Soleil upgraded the airline industry as a whole today, and specifically American Airlines, from hold to buy, giving shares a boost. Also mentioned was Continental Airlines (NYSE: CAL). Oil futures, which are finally relaxing somewhat over the past two weeks are also helping airline stocks. Recent technical indicators for AMR have been bearish but improving slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $20 range. AMR hasn't been below $20 since September and has shown support around $24. This trade could be risky if fuel prices rise again, but even if that happens, this position could be protected by the support the stock formed around $20 in August.

Brent Archer is an options analyst and writer at Investors Observer. Do you have any deadwood in your portfolio? Check out the 18 Warning Signs That Tell You When To Dump A Stock. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in AMR or CAL.

ConocoPhillips (NYSE: COP) opened at $70.05. So far today the stock has hit a low of $69.37 and a high of $70.70. As of 12:20, COP is trading at $70.38, up $1.10 (1.6%).

After hitting a one-year high of $74.89 in December, the stock has been slowly recovering over the past four months from a sharp dive it took at the turn of the new year. The front month crude oil futures contract is up 75 cents on the day, and front month gasoline futures are up almost 1%, boosting COP shares in early trading. Recent technical indicators for COP have been bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $60 range. COP hasn't been below $60 since October and has shown support around $67 recently. This trade could be risky if oil prices drop below $60 a barrel, but even if this happens, this position could be protected by the strong historical support around $63, combined with the stock's 200-day moving average, which is currently at $65 and rising.

Brent Archer is an options analyst and writer at Investors Observer. Do you have any deadwood in your portfolio? Check out the 18 Warning Signs That Tell You When To Dump A Stock. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At press time, Brent neither owns nor controls a position in COP.