Recently oil prices have bounced from just over $40.00 a barrel for West Texas Intermediate (WTI) to almost $50.00 a barrel. This recent rally has boosted the performance of the beaten down and bedraggled energy sector in recent weeks. I continue to view the oil complex as too opaque to make an educated guess on which way crude will head through year end 2015 and into 2016.

On one hand, Saudi Arabia continues to pump full out to enforce its position as “swing producer,” maintain its market share and to punish Iran, Russia and to a lesser extent U.S. shale producers. In addition, the global economy continues to decelerate lessening demand for energy.  Iran also should be returning to the worldwide oil market as sanctions are slowly lifted when the recent nuclear deal gets implemented.

On the flip side, oil rig counts are at the lowest level since the 2008/2009 recession in the United States and Russia’s recent escalation in Syria could roil markets or persuade Saudi Arabia to relent its full blown production.

In short, it is hard to ascertain the direction of oil over the next six months given the myriad, complex, and contrary forces at work in the oil market. My best guess is that crude remains parameter bound in a fairly loose range of $40.00 to $65.00 a barrel over the next half year.

I am remaining deeply underweight in both energy and commodity stocks given the lack of conviction in underlying prices as well as my concerns about how serviceable the levels of debt are in a good portion of these companies. Giant offshore services provider Transocean’s (NYSE: RIG) debt was downgraded to junk status on Thursday, something that is starting to happen throughout the energy sector as well as in commodity based exporters like Brazil.

However, the recent rise in oil prices has also boosted the stocks of tertiary plays associated with the price of oil but not as directly intertwined to its price as some investors believe. If oil rallies further, their shares should continue to benefit as sentiment grows more positive. Regardless, they should also be just fine earnings wise should oil head back down to $40.00 a barrel. I like the risk/reward of this strategy and it has started to pay off in recent weeks.

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