Oil stocks pushed upward for six straight days last week -- a welcome sight to anxious energy investors who have seen oil stocks fall of late. But what's popping oil stocks forward? Europe, a weak dollar, and better-than-average Q3 earnings, among other key drivers.

But let's take the magnifying glass out and get a closer look—especially to see if a one-week rally is sustainable in an otherwise muddled equity market landscape.

First the good news--U.S. crude oil futures are at a three-week high, boosted in part by stronger retail sales from U.S. consumers (a big driver for consumer spending, and usually a key predictor of higher oil sales), and by a more positive outlook for the Eurozone.

Wall Street insiders have taken note, and are helping to push oil stocks higher. "European officials are ironing out a plan to shore up the European economy to halt the spreading of the debt crisis -- including 'increased firepower' -- surreal amounts of cash from the IMF ... and U.S. Retail sales data came in better than expected," explains Matt Smith, an analyst at Summit Energy, in comment to TheStreet.com. "(So) pop goes the rally."

The Euro outlook: The Eurozone picture is a long-going, but increasingly interesting one. It's really a confidence issue among investors, who increasingly see a stronger role among European political leaders who are, by all hopes (outside of the short-sellers) taking a firmer grip on the continent’s debt woes, and have helped boost the euro to its best standing in nine weeks against the U.S. dollar.

More Eurozone countries are coming on board to support debt management efforts. Slovakia, which has been resistant to agreeing to debt reform as outlined by the European Financial Stability Facility, last week signed on to the initiative. Further brightening the Europe picture was an announcement by the European Commission to green light another round of financial support for debt-stricken Greece. That bailout -- and presumably others down the road -- should keep Greece afloat for another six months -- or at least Eurozone leaders hope so.

No doubt, a stronger Eurozone picture would help boost the price of oil, which currently sits at $86 per barrel. Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois, says Europe and some other key economic issues that currently favor oil companies should push crude up to $88 per barrel this week.

Sturdier heating oil futures: Another upward driver of oil stocks is a byproduct of the calendar. With cold weather coming in most of the U.S. and Europe, demand for heating oil (even kitchen table Moms and Dads love to lock in a decent price of winter oil) has helped pushed oil prices higher.

The U.S. Energy Information Administration Agency (EIA) estimates that consumer heating bills should rise by 8% this winter with the average consumer spending $2,493 dollars on heating oil from October 31, 2011, to March 31, 2012.

That, too, would spur oil and gas company stocks higher as the winter months beckon.

The China syndrome: Fears of a recession aren't just fanning in the U.S. and Europe. Even formerly hard-driving China is fighting the recession bug, but got some good news last week when its inflation rate declined in September. That should allow the Chinese government to pour some more stimulus money into the economy, without putting any inflationary dampers on its economy. Look for Chinese leaders to curb limits on bank lending to fuel economic growth, which should lead to more demand for oil and gas as growth hits a higher gear.

U.S. consumer spending: As noted above, U.S. consumers jacked up retail sales by 1.1% for the month of September--it's best performance since February, 2011. A good retail sales number is supportive of stronger oil performance in any month, but leading up to the holiday shopping season, when consumers spend the most they will all year, an uptick in consumer sentiment should provide enough "cruise control" to keep oil higher, and give investors a strong reason to jump in and test the waters on oil and gas stocks.

Helpful report from Goldman Sachs: A brand new report from Goldman Sachs says that crude oil prices are in a range and in a zone similar to 2007, just before crude oil prices jumped to $145 per share. In that environment, oil prices shot up to year-long highs. "Global OECD (the Organization for Economic Cooperation and Development) inventory levels are falling, rapidly," the Goldman Sachs report noted, adding that inventories from Europe, Japan, and the U.S. - - three crucial global markets - - are 30 million barrels below their five-year seasonal averages. That puts crude oil inventories back to 2006 levels and sets the stage for ample growth especially if the global economies continue to mend.

Also helping to boost oil company stocks last week was an uptick in consumer and business demand for oil, another measure showing the U.S. economy is improving, albeit slowly.

Taken together, the "bundle" of economic news coming out in recent weeks has been a boon to oil and gas investors. Sure, things can change on a dime on Wall Street, but for now, the outlook is as good as it's been for a while on energy stocks--but with no guarantee the landscape will stay that way.

Comments