The identification of the forces that drive oil stock prices is extremely important given the size of the oil and gas industry and its links with the energy sector and the environment. Global demand for oil is growing relentlessly, and most consumers have little choice but to pay virtually any price for this critical fuel.

Meanwhile global production growth is slowing as old oil fields deplete and major new finds become exceedingly rare. This structural deficit has driven oil prices to record highs, leading to fortunes earned by the companies that produce this scarce and valuable commodity. Investors and speculators have naturally migrated into oil stocks to ride this secular trend.

Unlike smaller sectors like gold stocks still dominated by contrarians, oil stocks have gone mainstream. Virtually every investor has some oil-stock exposure. The money managers trading these stocks for their funds trade them as merely another general stock sector. They buy oil stocks when the stock markets rise and sell them when the markets fall.

But oil stocks are not solely driven by oil. The larger a sector gets, the bigger the market capitalizations of its companies and the more traders who own them, the more general stock-market action also drives this sector's performance. In order to successfully trade these sectors, both the underlying commodity price and general stock-market action must be actively gamed.