Bullish investors were bailed out today by an unexpected decline in oil inventories.  Stocks had spent the opening hour trading lower after a lackluster Tuesday rebound from sharp equity losses.  But the news that inventories fell by 8 million barrels sparked hopes that demand was picking up and would be a solid indicator of economic strength.

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Not to throw cold water on the fire, but the decline actually had fairly little to do with actual pent up demand for energy.   In fact, oil demand is still down from last year and inventories appear to be lower as a function of refiners using crude which was stored instead of buying new production.  So it will be interesting to see whether crude oil prices which is currently trading near $72.20 will be able to maintain its strength.

The strength in oil coupled with a rise in gold today may actually point more towards inflation than towards economic recovery.  In late trading, the CRB index which is comprised of a broad assortment of commodities was up more than 1.5%.  This is quite a strong showing after significant weakness during the majority of the month.

As energy prices begin to rise, the natural outcry from many consumers may be to cry “foul.”  After all, there has been extreme public opinion against oil companies, the Wall Street firms who profit from trading energy, and in many cases the public forgets that the majority of IRA’s and 401(k) plans have exposure to these companies and these profits in their own retirement accounts.  Instead of debating on whether Congress should control prices (it’s my heartfelt belief that the free market does a much better job of setting price points), let’s look at some opportunities for investors to capture gains in energy (and alternative energy) names.

• Chesapeake Energy (CHK) – This natural gas producer has one of the most disciplined and yet still opportunistic management teams in the business.  The stock is trading at a single digit multiple which could see expansion quite quickly if drilling programs are increased.  Any upward movement in natural gas pricing should push management one step closer to pulling the trigger on new projects as the economics suddenly become advantageous.  The company has made some strategic moves in regards to their debt which should give more flexibility and financial stability.
• SunPower Corporation (SPWRA) – After gaping higher on a strong earnings report, the stock has settled back into a trading range.  The company has been able to tweak its business mix to include more sales of its high margin modules.  This means profitability levels are rising and there is some indication that a glut of oversupply in solar products is beginning to abate.
• ReneSola Ltd. (SOL) – It’s been a couple of months since we have touched on this name, but the company has made good progress on reducing its debt load and should return to profitability in the coming year.  If analysts are correct and the company earns $0.66 per share in 2010, then the stock is currently at a single digit multiple while growth is right around the corner.  Granted, this is a more aggressive trade, but the potential for a double or triple in the next several months is in play.

So as we begin to see a trend emerge in energy markets and to a broader degree, commodity markets, wise investors will likely allocate an appropriate portion of capital into situations which will benefit from higher hard asset prices.

FD: Author does not have a position in stocks mentioned

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