Marc Courtenay's  Instablog

For those of us who've been waiting for oil and natural gas to move higher, this week has rewarded our almost-exhausted patience. It is Friday, 1pm EST as I write this Brent Crude is up $1.23 today at $57.70 per barrel. Natural Gas has again moved higher today, up 4% in one day at  $4.25.

This has been a rally I anticipated and it wouldn't surprise me to see oil test the $60 level and Natural Gas try to break through the $4.50 level. These are the higher ends of the trading range I spoke of in my last article about the energy sector.

The government continued to issue reports this week that influenced energy prices, but in which direction depended largely on how the data were interpreted.

For example, the Energy Information Administration said America's oil surplus grew less than expected, which is typically gives energy prices a boost. But levels rose nonetheless, meaning storage houses were bloated with more crude than has been seen in nearly 19 years. Growing levels of unused crude in most cases would drive energy prices down.

In addition, the government said refineries have cranked up operations a bit more. But it also said American petroleum consumption has dropped to its lowest level in a decade.

Then on Friday, the U.S. Labor Department said that employers cut 539,000 jobs in April. That was less than expected and the smallest reduction in six months. However, the U.S. unemployment rate climbed to 8.9 percent, the highest since late 1983.

For most of us and myself included, a sustained rise in energy prices seems hard to justify. Short of some sudden and unanticipated disruption in supply, I would expect energy prices to top out in the next two weeks and then start heading down to the lower end of the range.

"There's shock and disbelief that oil and gas can defy the normal historical reactions to supply and demand," analyst Phil Flynn said in a client note. "Traders are calling me and are stunned with no idea of what is happening."

I've started to sell into this unexpected pop in prices. I sold my position in Dorchester Minerals LP (Nasdaq:DMLP) and half my position in San Juan Basin Royalty Trust (NYSE:SJT).

It also seems prudent to me to pick some exit prices for my Hugoton Royalty Trust (NYSE:HGT) and since many of the energy companies and trusts have had a nice rebound from the lows, I'm even going to sell most of my Penn West Energy (NYSE:PWE) if it moves yet another 5% higher from today's price.

Those who have held on to Chesapeake Energy (NYSE:CHK), Devon Energy (NYSE:DVN), Apache Energy (NYSE:APA), Canadian Natural Resources (NYSE:CNQ) and Ensco International (NYSE:ESV) have had a wonderful week. Friday saw all of these pop between 5 and 10% in just one day.

These  kind of stocks, energy trusts, and royalty trusts are a great way to achieve both growth and income when purchased discreetly. These make a great "wish list" of ones I want to buy back once we see the next worthwhile price correction which might not be far off.

You can add to my wish list more shares of Cross Timbers Royalty Trust (NYSE:CRT), Anadarko Petroleum (NYSE:APC) and Provident Energy (NYSE:PVX).

In my "by the way" segment, have you noticed how much Atlas Pipeline Partners (NYSE:APL) has benefit from the rise in Natural Gas prices. It has doubled off its recent lows and is up almost 11% on this very day.

There are two things you can expect from the energy sector in the months ahead: 1) Lots of volatility which should be great for smart traders, and 2) The unexpected, which will make the risk/reward variables that much more the factors to be aware of. Between the market maniipulators (who are very active in the energy and precious metals sectors) and geopolitical events, the "unexpected" will punish us and reward us with consistency right through the year 2012 and beyond.

Anticipate these two factors, buy low, sell high and hopefully over the next 3 years your account values will be recovering nicely. In the meantime, I'm still long UNG, DBO and USL as far as ETFs are concerned. But those holdings have some sell-limit price orders waiting for a good exit point soon.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

Disclosure: I'm long HGT, SJT, CRT, PWE, APL, ESV, PVX, UNG, DBO, USL