Oil Stocks Still Holding Their Ground

With the war now on, energy stocks are acting a lot like soldiers. They're doing exactly what's expected of them.

The big majors are remaining stable despite the recent dive in commodity prices. The energy services companies are bouncing at the prospect of quick opportunities in Iraq. Even oil-well firefighter Boots & Coots (WEL Quote) -- the market's latest Cinderella stock -- has managed to hold on to some of its recent gains despite its shaky future.

In other words, the Iraqi war has delivered no nasty surprises. So the energy sector -- directly touched by the Middle Eastern developments -- has delivered no surprises, either.

But experts caution that the war is still young.

"The critical moment is now," said David Edwards, president of Heron Capital Management and a contributor to RealMoney.com. "By Monday we should know if the war is going to be short or long."

On the basis of the past 24 hours, Edwards said, the war looks to be short and successful. Iraq's strongest reaction has been the reported torching of three or four oil wells -- mere house blazes compared with the 700 wells firefighters spent eight months extinguishing in the last war with Saddam Hussein. And energy stocks indicate that the world should expect more of the same.

Seeing 20/20

The big integrated companies -- including BP (BP Quote), ChevronTexaco (CVX Quote), ExxonMobil (XOM Quote) and Royal Dutch (RD Quote) -- held steady Thursday, even as oil prices tumbled to three-month lows.

Analysts have long said the stocks, which are trading near 52-week lows themselves, already reflect much cheaper oil prices than people are actually paying. They were pleased to see the stocks shrug off a weeklong 25% plunge in oil prices -- to below $26 a barrel on Thursday -- as proof of their theory that investors had already factored lower oil prices into the stocks.

"We've seen the first backing off on oil prices," said George Gaspar, an analyst at Robert W. Baird. "And the integrateds have reacted well."