Advisors unwilling to dig into the oil and natural gas markets could be forgiven. Prices have bounced around enough to unsettle even the most iron-willed investor, and analysts don't see too much recovery in the short term.

Despite OPEC's decision in December to cut production and tensions in Gaza creating a temporary spike in January, demand is almost certain to continue to drop as companies tighten the reins on resource spending. Those who watch the sector say firms now standing on solid ground are where investors should head. "Multinational firms are going to be in the best shape to ride this out," says Tom Kloza, the chief oil analyst and publisher for Oil Price Information Service, an information company that tracks the petroleum market. He cites firms such as Royal Dutch Shell and Exxon Mobil, which both saw profits rise in 2008 even as their share prices dipped. "They never based their exploration on $140 a barrel," he says. "They were much more conservative."

Natural gas is also feeling the effect, with prices dipping below $6 per 1,000 cubic feet— down from last year's peak of $13.60. Firms that supply the equipment for exploration are already reacting, as both oil and natural gas firms button-up their budgets to reserve cash. "Clearly everyone, in private, is taking a hard look at spending budgets, and cuts are coming," says David Rewcastle, oil field services analyst with Argus Research. "These won't be cuts in projects that already began but in renegotiating contracts, or even postponing them." Still, the services firms with some global exposure are better insulated, he adds, pointing to Halliburton and Weatherford, a Houston-based provider of oil field services.

A belt-tightening mood continues on the natural gas side, as well. "If there is a longer, colder winter, natural gas demand could go up," says Phil Flynn, vice president and senior market analyst for the Chicago-based Alaron Trading Corp. "But if prices then go too [far] up, industrial demand goes down."

So the market is rewarding any conservative move to store cash reserves. When Chesapeake Energy, the second-biggest independent natural gas producer in the U.S., announced plans to cut capital spending for 2009 and 2010 by a combined $2.9 billion, or 31%-a move that would increase its cash position-its stock price got an immediate bump of 24%.

Many energy conglomerates are making similar moves as they watch emotions fuel the stock market in both directions. "It's like that image of the Grinch sitting on the precipice in his sled," says Rewcastle. "You're not sure if it's going to go one way or the other." While most experts believe that demand in developing countries will keep prices from plunging, no one favors a bullish mood. "Conditions going to $100 [a barrel] don't exist anymore," Flynn says.