The volatility in the energy sector, and in the entire market, is pushing analysts to carefully navigate this field. While the recent bailout by Congress carried hopes of easing some credit concerns, the stock market's subsequent fall on Monday, Oct. 6 and falling oil prices are making those who watch the oil sector bearish to say the least.

"We're certainly heading for a recession, how deep no one knows," says Fadel Gheit, managing director of oil and gas with Oppenheimer & Co. "And despite the pull back in oil prices, they are still inflated and don't reflect the global demand in general. There is plenty of downside to go."

As oil prices rose, both consumers and refineries were hurt. Consumers cut their consumption and oil companies were unable to earn back their costs. "Refining margins have been crushed," says Gheit, who points to Exxon, Shell, and BP as just a few of the energy companies having a horrible year. "And there's plenty of bad news to go."

Still, Stewart Glickman of Standard & Poor's equity research is up on the oil field services and drilling subsectors that he covers. Why? Precisely because of demand issues. While conservation kicked in when prices started to spiral up at the pump, the reality is, the needfor oil worldwide is only growing, he says. "If long-term expectations are high enough, firms will continue to spend to rent rigs and keep exploring," says Glickman.

Interestingly, chatter to open drilling in off-limit areas doesn't drive Glickman's buoyancy. True, he believes the move would be positive for oil field and drilling firms-but even without that extra boost this sector is a good bet, he says. "If they did open, they would be gravy," he says. His picks either way? Noble Corp., a five-star choice, for its franchise in international offshore drilling. And Transocean, which also earned five stars for being the world's leader in deep water rigs. While the firm does carry a heavy debt load, which given the current credit crunch could be worrisome, Glickman notes that it has high revenue and cash flow.

The market woes have also affected the utilities subsector. In addition to the decline in power prices, many have had higher operating costs, says Justin McCann, an equity analyst with S&P. Christopher Muir, another S&P analyst, notes that conservation efforts by consumers, and high gas prices, have also wounded gas utilities. Efforts to bring new gas supplies to the East Coast in the future could alleviate some of the pricing pressure there, thus reducing the burden on users to conserve.

The natural gas picture is not provoking cartwheels out of others either. While financier T. Boone Pickens is sparking this sector with proposals to dramatically increase natural gas fueled cars on the road, demand still remains low. Michael Zenker, natural gas analyst for Barclays Capital, agrees that there will be sluggish demand in the marketplace for natural gas ahead, but believes producers will show restraint to help curb excess. "They have a new found discipline," he says. Still, moderate temperatures nationwide this summer and conservative use by consumers have left him bearish on the natural gas subsector. "It's a real mixed bag," he says.