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.

The interest in using natural gas as an alternative to crude has helped natural gas-based companies appreciate in value. Chesapeake Energy (NYSE: CHK) has benefited from that interest, with a gain of more than 20% this year.

CHK is an interesting story in that during the craze in energy prices in 2008, the CEO of the company was forced to liquidate his entire position. That forced selling created an opportunity to buy the stock at an incredibly cheap price, even beyond the artificially low energy prices reached earlier this year.

The China miracle is back on track, and with it comes speculation for resource demand as a result of huge economic growth. Within the oil sector, the coal group has seen big gains given its use in power generation. In China, that is particularly true, with the country seeing new power plants open on a regular basis.

Yanzhou Coal Mining (NYSE: YZC) appears to be in the sweet spot. Investors seem to agree and have pushed YZC up almost 70% in 2009. China is an appealing play, but by no means certain.

Drill, baby, drill was the calling card of the Republican Party during the last presidential election.

With high oil prices and rising demand, finding new sources of oil is imperative. Given environmental concerns, offshore drilling is one space that still offers meaningful potential to increase domestic supply.

Diamond Offshore Drilling (NYSE: DO) operates some 45 deep water rigs that are keeping extraordinarily busy with oil prices on the rise.

Suncor Energy (NYSE: SU) is a vertically-integrated oil company located in Canada. Unlike its vertically-integrated brethren in the United States, this Canadian stock is up more than 40% this year. By comparison, Exxon Mobil (NYSE: XOM) is down 13%, and ConocoPhillips (NYSE: COP) is down more than 20%.

The reason for the big difference in performance is the weakness in the dollar. That makes Canadian-based Suncor more valuable to investors.

McDermott International (NYSE: MDR) is a global oil engineering and construction company that specializes in offshore oil and gas construction and power generation systems.

Although more diversified than pure oil plays, McDermott has benefited greatly from the increase in price in crude.

The speculation is that McDermott will be quite busy with construction projects, as drillers are more active with the higher prices.

You have to love OPEC. It's not uncommon for the barons of the giant cartel to voice their interest in seeing oil at such-and-such a price.

Recently, OPEC reiterated its desire to see oil prices at $80 per barrel. This, they claim, is the price needed to spur additional investment in crude projects. Apparently, anything less will result in oil sitting idle in the ground.

"National Oilwell Varco (NYSE: NOV), a buy in our 'Wildcatters portfolio,' will see an outsized benefit from improving conditions in the global oil market," says Elliott Gue in The Energy Strategist.

"Rig technology is the crown jewel of National Oilwell's business; the unit builds key equipment used on land and offshore drilling rigs.

"The unit is currently benefiting from the boom in deepwater drilling activity -- one of the only drilling markets that continue to see growth.

"Equipment used on deepwater drilling rigs is far more complex and expensive than that used on land or shallow-water rigs. As a result, selling equipment into the deepwater market carries far higher profit margins for National.

Cheniere Energy (AMEX: LNG) builds liquefied natural gas terminals and natural gas pipelines. It is a smaller energy company that also participates in oil and gas exploration and development in the Gulf of Mexico.

Should oil continue on its current trajectory, demand for natural gas will increase at a greater rate. LNG suffered from increased competition from larger players that entered the space when oil prices were rocketing higher and a large amount of debt on its balance sheet. The credit crisis pushed shares to the brink, but retirement of certain notes in exchange for common stock reduces LNG's interest expense and provides liquidity for the foreseeable future.

Investors interested in foreign exposure to crude should consider China Petroleum and Chemical (NYSE: SNP).

Imagine the demand for crude for a nation whose economy is growing like a weed. The economies of the world may be receding, but China is still growing. More importantly, its government is investing heavily in making sure that growth continues.

Given that fossil fuel is so critical to any industrial society, owning China Petroleum makes a ton of sense. The stock is up almost 50% since bottoming in March, but there are more gains to be had.

I rate SNP a B or Buy.

Next up: Oil Stock #3.

This oil refiner is up 25% so far in 2009, but it is still way below the almost $30 per share it traded at a year ago. Now, just under $17, Tesoro (NYSE: TSO) trades for eight times forward earnings.

Given that oil prices are on the upswing, look for TSO to sell refined product at higher prices at the pump. Buy low; sell high. It is that simple for TSO.

As long as we avoid the massive swings in crude prices, this little oil refiner can expect to see its stock double in value over the next year or two.

I rate TSO a B or buy.

Up next: Oil Stock #2.

With oil prices heading to $70 or more, owning oil stocks is a must for any investor looking to generate maximum returns.

Crude traders are betting that a stronger economy will result in increased demand for oil. At the same time, OPEC is holding firm on production cuts that reduces supply.

And let's not forget about the summer driving season which officially kicks off this Memorial Day weekend.

All of these factors mean investors can confidently operate under the assumption that oil prices will go up in the foreseeable future.

"As the global economy rebounds late this year or next year, demand for energy will rise again, sending prices of crude and natural gas higher," says growth and income expert Bryan Perry.

In his top-notch The Cash Machine, he explains, "With energy assets cheap by historical standards right now, I want to increase our exposure to LINN Energy LLC (NASDAQ: LINE), a best-in-class inflation hedge."

"Founded in 2003, LINN is an independent oil and gas Master Limited Partnership (MLP) that completed its initial public offering (IPO) in January 2006.

It goes without saying, that the oil/oil services sectors are preferred here. Look for oil to remain a major fuel for propulsion for at least three more decades, even with alternative energy source development. And with the aforementioned in mind, Occidental Petroleum (NYSE: OXY) is worth a review.

Occidental Petroleum engages in oil/gas exploration and also makes basic chemicals, plastics, and petrochemicals. The company has proved reserves of 3 billion barrels of oil equivalent in three regions: U.S./North America, Middle East, and Latin America.

Readers of the this space know that two preferred sectors are integrated oil and refining sectors. Would that the United States could wean itself from oil relatively quickly and transition to a cheap, environmentally-friendly, alternative energy source (natural gas, electric, fuel cell) for auto transportation. Unfortunately, as researchers remind us, that goal is at least a decade away, which means companies like Marathon Oil (NYSE: MRO) will remain in the catbird seat.

Marathon Oil recently concluded that, rather than spin-off units, it is in the best interests of its shareholders to remain an integrated business. Net result? Earnings stability for investors, thank you.