Oil fell $3.92 to $133.08 per barrel Wednesday at mid-day after the U.S. Energy Information Administration announced that weekly crude oil inventories unexpectedly rose by 803,000 barrels.

Economists surveyed by Bloomberg News had expected crude oil inventories to decrease by 1.1 million barrels last week. It was the first rise in weekly oil inventories in six weeks. Also, gasoline supplies fell by 153,000 barrels.

A rarity: A bearish oil report

Traders took a bearish view of the weekly oil report, and sold the major energy commodities. In mid-day Wednesday trading unleaded gasoline fell about 3 cent to $3.43 per gallon. Heating oil fell about 3 cents to $3.78 per gallon. Natural gas declined 19 cents to $12.82 per million BTUs.

The upward arc of gasoline prices in the United States continues.

The average U.S. price for a gallon of gasoline rose 10 cents in the past two weeks to $4.10, the Lundberg Survey announced, The Associated Press reported Monday.

Mid-grade gasoline averaged $4.22 per gallon; premium, $4.33. Tulsa, Oklahoma recorded the cheapest regular unleaded gasoline in the nation, at $3.76; the Los Angeles and Fresno areas of California, the highest, at $4.59 for regular unleaded.

Further, the average gasoline price is up $1.10 or 36% compared to a year ago. The Lundberg Survey collects price data from 5,000 gas stations nationally.

Further, gasoline's record price rise has renewed a policy debate between Republicans and Democrats in Washington concerning the most effective way to lower gasoline prices, Bloomberg News reported. Republicans favor lifting the ban on offshore drilling, while Democrats favor increasing vehicle fuel efficiency requirements.

Gasoline Analysis: Despite a considerable reduction in U.S. gasoline consumption, year-over-year, U.S. gasoline prices continue to march higher, due to higher oil costs and an inadequate U.S. refinery system. Further, assuming prices follow their historical, seasonal path -- upward through at least the July 4 holiday period -- in the U.S., the average gasoline price is likely to exceed the U.S. Energy Information Agency's estimate of $4.15 per gallon -- a level that will continue to reduce disposable income and lower GDP growth.

Readers of this space know that one of the preferred sectors has been the oil/oil services sector. Further, with oil now well above $110 per barrel, one may think that all of the affordable oil plays have been bid up. Indeed, most have, but not Chevron.

Chevron Corporation (NYSE: CVX) is the third-largest integrated oil company in the United States.

Chevron's organic reserve replacement, excluding Canadian oil sands, is sub-par, but just about every other dimension of CVX's operation rates good to strong.

Chevron's most attractive dimension? CVX has the equivalent of 'the facilities of significance' in an oil-challenged world, and especially in a gasoline-challenged United States: 22 fuel refineries, to go along with 2 asphalt plants, for a total refining capacity of 2.21 million barrels per day. Almost half of that fuel refining is based in the United States.

Oil is treading water -- for now -- at a near-record $122 per barrel Wednesday, after a U.S. Energy Information Administration report indicated that weekly crude oil inventories rose a larger than expected 5.7 million barrels.

Economists surveyed by Bloomberg News had expected crude oil inventories to increase by 1.63 million barrels last week. Also, gasoline supplies rose by 800,000 barrels.

Oil idles near $122

The larger than expected increase in oil inventories put a brake on oil prices, for the moment. Oil rose just 30 cents to $122.14 per barrel in Wednesday morning trading. The other major energy commodities were also virtually unchanged. Unleaded gasoline gained 1 cent to $3.11 per gallon. Heating oil rose about 2 cents to $3.37 per gallon. Natural gas gain 2 cents to $11.15 per million BTUs.

Readers of this space know that one of the preferred sectors is oil / oil services. Given oil's importance in a growing global economy, oil and oil services companies are likely to continue to experience steady demand for their services/products. And with the aforementioned in mind, Berry Petroleum is worth a review.

Berry Petroleum Company (NYSE: BRY) is an independent energy company engaged in the production, development, acquisition, exploitation and exploration of crude oil and natural gas.

Analysts like Berry's ability to cost effectively identify properties with heavy crude oil reserves for sale to refineries. Berry has proved reserves of 150.3 million barrels of oil equivalent.

In addition to its core operations in three southern California counties, analysts also like that Berry is investigating several other basins, which would establish another core area and provide additional growth opportunities and diversification of the company's predominantly heavy oil resource base. The Reuters FY 2008/FY 2009 EPS consensus estimates for BRY are $3.38 to $3.66.

Readers of this space know that one of the preferred sectors is oil and oil services. Given oil's importance in a growing global economy, oil and oil services companies are likely to continue to experience steady demand for their services/products. And with above in mind, ConocoPhilips is worth a review.

ConocoPhilips (NYSE: COP) is the third largest oil company in the United States. With proven reserves of 35 billion barrels of oil, COP has the oil assets, upstream production and -- equally important -- downstream refining capacity to benefit from both oil's current high price and its likely, continued ascent, long-term.

Further, COP's 12 U.S. refineries represent the most compelling operations positive for the next 3-5 years ahead. In addition, COP has a $3 billion plan in place to expand the company's ability to refine heavy sour crude oils.

The highly improbable may be happening. U.S. gasoline consumption may be arcing downward, The Wall Street Journal reported Monday (subscription required).

Confronted with near-record gasoline prices, an anemic-growth U.S. economy, and rising food costs, among other living expense increases, U.S. gasoline consumption has fallen about 1.1% in the past six weeks, on a year-over-year basis, The Journal reported Monday, citing U.S. Government data. Further, excluding Hurricane Katrina in 2005, which destroyed energy facilities, the six-week drop in demand is the longest drop in 16 years.

If the 'mini' trend strengthens or at least holds on a year-over-year basis, experts say it will limit gasoline price increases that typically occur during the summer driving season - - a period when U.S. gasoline consumption historically increases and oil companies increase gasoline prices to take advantage of that higher demand.

U.S. crude oil inventories increased 3.2 million barrels for the week ending February 22, 2008, the U.S. Energy Information Administration announced Wednesday (pdf). Economists surveyed by Bloomberg had expected a 2.6 million barrel increase.

Oil continued to trade at near-record levels on the news. Oil was down 33 cents to $100.25 per barrel Wednesday at mid-day, after trading above $102 earlier in the session. The other major energy commodities were mixed at mid-day. Heating oil gained about 1 cent to $2.81 per gallon, unleaded gasoline rose 1 cent to $2.53 per gallon, and natural gas declined fell about 10 cents to $9.11 per million BTUs.

If you do not own Valero Energy Corporation (NYSE: VLO) already, you were not listening last year when I was ranting and raving every month why this was a must-own stock. It was one of my favorites last year, remains one of my favorites now and looks to have an open road ahead of it in 2008.

Valero's profit margins were squeezed in the second half of 2007 by high crude prices rising while pump prices were stable, but that is likely to change, and I think the stock can continue to appreciate significantly. It may not change fast , as the economy is going through some rough spots. Also, VLO, which is reporting earnings on January 29, may still have some lingering margin issues.

Last year this was one of my top picks and jumped 36%. I rarely make specific predictions as analysts tend to do, but I feel comfortable stating VLO can beat all the major indices. Everything I liked about Valero last year is still in play now, so I'm letting this winner ride.

Investors and readers know about the barely-adequate crude oil refining system in the United States.

It's hard to believe, but when the U.S. opens its next refinery, it will be the first new one in more than 20 years. Meanwhile, demand for refined crude products, including gasoline, continues to rise. That's why it makes sense to consider a refining stock or two, such as Valero Energy (NYSE: VLO).

Valero is the largest oil refiner in the United States, but that's not the only compelling dimension to VLO. Valero also boasts what oil analysts call "refining flex." Valero can process large amounts of lower-cost heavy and sour crude -- refining these into cleaner-burning, higher-margin products, including low-sulfur diesel.

Another VLO advantage: Valero has refineries throughout the U.S., in New Jersey, Delaware, Louisiana, Oklahoma, Tennessee, Texas and California, in addition to facilities in Aruba and Canada. The company's overall production capacity is 3.1 million barrels per day. The Reuters F2007/F2008 EPS consensus estimates for VLO are $8.19/$8.16.

The risks? A major U.S. economic slowdown or recession would hurt VLO's results. Further, margins on selected product grades may narrow in 2008, but many grades will still be above historical norms.

The First Call mean rating for VLO is: Buy. [21 firms.] Mean 2008 target: $80.40. [high: $110, low: $51.]

Stock Analysis: Valero is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than one year should be rewarded from VLO's shares. Sell / Stop Loss if you were to purchase shares in this company: $44.

Saudia Arabia's effort to have the Organization of Petroleum Exporting Countries (OPEC) increase production by 500,000 barrels by early next week may bring a "modest amount of price cooling" in the oil market, short-term, according to one oil trader.

Independent energy trader Jim Dietz told Bloggingstocks Monday that even though the Saudi's ability to move oil prices is not as strong as it was a generation ago, the nation still has "a strong voice in OPEC, and in OPEC's production," which helps determine the global price for oil. Oil fell $2.19 to $94.13 in mid-day trading Monday, as traders trimmed long positions ahead of an oil producer summit this weekend in Saudi Arabia.

"Clearly, the Saudis are not happy with oil flirting with $100 per barrel. I mean, who is? The Saudis fear a major slowdown in the global economy if oil stays this high or moves higher during 2008. And frankly, everyone in the oil market fears the same thing," Dietz said. "If they can persuade OPEC to increase production by 500,000 barrels, that amount, and some cheating, will help stabilize the market in the short-term."

The markets have two additional oil industry data points to digest Friday, and through the weekend:

First the good news: OPEC (Organization of Petroleum Exporting Countries) has increased oil production in response to sustained +$90 per barrel prices.

OPEC's 10 members bound by output targets, all except Iraq and Angola, pumped 26.98 million barrels per day, up 180,000 barrels per day from September 2007, according to the survey of oil firms, traders, OPEC officials and analysts, Reuters reported Friday.

Has oil's high price given you the shakes? Well relax, and leverage oil's high price by considering Marathon Oil's (NYSE: MRO) shares.

Marathon has the 'oil triple play,' of sorts, what one likes to see in an oil operation: a large, geographically-wide exploration footprint, very good production, and strong refining operations.

Further, that last tangible may be the most valuable, given the barely-adequate refinery capacity in the United States. What's more, Thursday's market sell-off that saw the Dow close down about 362 points to 13,567.87, has created a buying opportunity with Marathon. MRO's shares closed down $1.46 to $57.63. And with a p/e of 9, MRO's risk/return ratio is low.

MRO's drawbacks: Analysts are keeping an eye on costs, and healthy gasoline refining margins may narrow heading into early 2008. But unless there is a substantial increase in global oil production, or a comparable reduction in U.S. gasoline consumption, Marathon is well-positioned for the immediate years ahead. The Reuters F2007/F2008 EPS consensus estimates for MRO are $6.04/$6.44.

The First Call mean rating for MRO is: Buy. [20 firms.] Mean 2007 target: $63.75. [high: $75, low: $46.50.]

Stock Analysis: Marathon is moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 1 year should be rewarded from MRO's shares. Sell/Stop Loss: $39.

With the markets in a choppy consolidation mode, it's best to consider including a few defensive stocks in your portfolio. Hess Corp. (NYSE: HES) is worth a review.

Hess's 68% organic reserve replacement is sub-par but most other fundamentals are favorable. In general, analysts see decent-to-good production increases, and reasonable operating costs, but the value driver here, of course, is gasoline refining, energy marketing, and retail gasoline sales (including 1,350 Hess gasoline stations). A liquefied natural gas joint venture also adds to the mix. The Reuters F2007/F2008 EPS consensus estimates for HES are $5.72/$6.24.

Hess is not as well-known or as large as its oil industry counterparts, but in the era of elevated oil prices, and barely-adequate U.S. refinery capacity, particularly for gasoline, those two data points can be overlooked. Moreover, in general oil stocks are not a defensive play, strictly speaking, but the bias here is toward adding an oil stock or two, given current market conditions, as there's little empirical evidence to suggest that the era of elevated oil prices will end anytime soon.

Last December, over 100 stocks were featured in our Top Picks for 2007 report. Now, at mid-year, we turn to the 20 advisors whose picks showed the strongest gains to get an update on their previous picks, as well as a new favorite stock for the second half of the year.

Ken Kam, editor of Marketscope, chose Valero Energy Corp. (NYSE: VLO) as his top pick for the year; it rose 48%, as of June 1, 2007. Here is his original recommendation for VLO as well as his new favorite stock idea for 2007.

Updating his outlook on Valero, Ken explains, "Refineries were once regarded by Wall Street as nothing more than future hazardous waste sites. For much of the last 30 years, it made sense to keep money-losing refineries operating in order to avoid the cleanup costs of shutting one down.

"Things have changed a lot in the past five years. Today, there is no excess refining capacity and profit margins have soared. The demand for refined products continues to grow along with the economy, but there are virtually no prospects for any new refineries being brought online anytime soon.

"The refineries that were once disregarded are now literally worth more than gold mines. Yet refining companies still trade at single-digit P/E ratios. Valero trades at a P/E less than 7. The S&P 500 by comparison has a P/E of about 16.