SAN FRANCISCO (AFX) -- Oil and gas stocks rose for a second day Tuesday as crude oil prices rebounded from an overnight slump.
Strong gains across the broad market also lent support to the sector, with the Dow Jones Industrial Average advancing 75 points to 11,151, its highest level since June 2001.
At the close, the Amex Oil Index was up 1.5% at 1,058.18 points while the Philadelphia Oil Service Index finished 2.6% higher at 199.49 points and the Amex Natural Gas Index ended with a 1.4% gain at 394 points.
The late advance sharply reversed earlier losses following a downbeat revision of world crude oil demand from the Paris-based International Energy Agency.
While the agency sees crude oil demand continuing to rise, it trimmed its global crude oil demand growth forecast for 2006 by 16%, to 1.49 million barrels of oil a day from 1.78 million.
The IEA pinned the revision on stubbornly high prices for refined petroleum products and growing evidence of weakening demand in Southeast Asia.
The report sent crude oil prices tumbling to a low of $61.27, but the market roared back, ending the day at $62 a barrel as traders again turned their attention to simmering tensions between Iran and the West over the OPEC nation's nuclear program.
Not all analysts saw the uptick in energy stocks as a sign of lasting strength in the sector.
'Why be excited now? 'Investors' (aka traders) are now plotting their next seasonal move, post the 'E Sector's' correction. With a 'crowded marketplace' and sidelined cash, traders tend to get more anticipatory,' said John Herrlin, energy analyst at Merrill Lynch.
'And with few other sectors working, a rebound turns into a rally as hedge funds with short positions run for cover. We think today's rally will be short lived,' he added.
In Washington, several oil company executives testified Tuesday before the Senate Judiciary Committee on consolidation in the industry, a hearing convened to examine, among other things, the steep rise in oil prices and oil company profits over the past year.
'With respect to the committee's specific question -- whether mergers and acquisitions in our industry have contributed to higher prices at the pump -- the answer is no,' Exxon Mobil chief executive Rex Tillerson said in prepared testimony.
Tillerson argued oil companies need to establish sufficient scale to successfully manage projects around the world to ensure a steady supply of petroleum to the market.
Exxon Mobil Corp. finished the day with a 1.9% gain at $60.81 while No. 2 U.S. oil company Chevron Corp. rose 2.1% higher to $56.35 and BP Plc. added 1.4% to end at $68.53.
In company news, offshore driller Rowan Companies Inc. said it landed two contracts for work in the British North Sea starting early next year. The company said the contracts will generate between $127 million and $311 million in revenue.
Rowan stock rose $2.20, or 5.6%, to $41.55 a share, handily topping percentage gainers in the oil services sector.
Stocks were also overwhelmingly higher in the natural gas sector on an 8.3-cent gain for the April natural gas futures contract, which closed at $7.09 per million British thermal units.
XTO Energy posted the biggest percentage gain in the group, up 2.9% at $42.10, with Apache Corp. showing the only loss on the 15-company natural gas index, down 0.1% at $65.23. This story was supplied by MarketWatch. For further information see www.marketwatch.com.