The carefree summer is long gone, and with economy noticeably cooling oil prices have recently headed south.

The US benchmark of West Texas Intermediate is still quite pricey in a historical context at $97 a barrel, of course, but it is down from $110 in early September when the US was threatening to bomb Syria.

The failure of that plan and the economic brakes of higher interest rates and dysfunctional government were not the only drags on oil prices. Iran has made a serious push to resolve its nuclear dispute with the United Nations, with the goal of ending trade sanctions that have crippled its economy and crude exports. And meanwhile the summertime gush of crude along new pipelines from the US interior to the Gulf Coast has slowed, leaving the glutted domestic inventories  to grow once again.

Add up all these negatives and $97 a barrel starts looking mighty fine, perhaps too fine, just the way it did last spring to the people calling for oil to soon dive to $70.

One difference between then and now is that then energy stocks were the perennial laggards who’d missed yet another rally, whereas now they are the belles of the bullish ball. A month ago I wrote about the increasing outperformance of the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP), made up mainly of midcap and small-cap drillers, many of them fast-growing crude producers. This ETF has exploded higher over the last two weeks, finally clearing its prior 2008 peak. Between Oct. 9 and Oct. 18, the XOP rallied more than 11 percent, especially remarkable considering that none of its 73 components accounts as much as 2 percent of the portfolio.

We’ve come along for the joyride thanks to longtime portfolio holdings such as Oasis Petroleum (NYSE: OAS), which has ripped 40 percent higher since the end of August, more recent picks like Chesapeake Energy  (NYSE: CHK), which has returned 38 percent in under six months, and newcomers like WPX Energy (NYSE: WPX) up a gratifying 17 percent since we recommended it less than a month ago. (All of these figures through Tuesday.)

Oil stocks have not been bubbling in splendid isolation, of course. We picked First Solar (Nasdaq: FSLR) two months ago with an aggressive buy below target more than 20 percent above its price at the time, and now find this target exceeded by more than 20 percent and ourselves sitting on a 48 percent profit for our trouble.

Octoberfest

Speculative hype has seeped in, observable in periodic rumors that Chesapeake might get bought by someone larger, or that an activist investor is preparing to go after First Solar. In any case, the recent acceleration of the gains even in the face of declining oil and gasoline prices leads me to believe that a correction may be in the offing sooner rather than later.

A game plan to preserve the gains is in order, and we’d suggest taking partial profits on the biggest winners of late, especially the higher-growth names focused on crude, which are exposed to more commodity price risk in this off-peak season as they continue to ramp up production.

We’re not selling out of Oasis, one of the most promising crude drillers in the Bakken, nor giving up on First Solar, which is still not expensive relative to its bright long-term prospects. But anyone with big profits in these names would be prudent to take some money — say, a quarter or a third of the total position — off the table.

Crude faces several big downside risks, and some are much more likely to bite than a big deal with Iran that floods the market with more Middle Eastern barrels. Recent market gains will only stimulate the flood of investment into high-return shale basins like the Bakken  and the Eagle Ford, old standbys like the Permian and emerging plays like the Utica and the Hugoton.

The US Energy Information Administration expects the US to produce a million barrels per day (bpd) of crude more this year than last, and to add another million next year, when US production is expected to reach 8.5 million bpd satisfying 72 percent of domestic needs, the highest share since 1985.

Hale Shale

Source: US Energy Information Administration

This crude will pour into a market constrained by recently stagnant energy demand, and challenged by the much cheaper natural gas as well as increasingly competitive wind, solar and electric alternatives. Meanwhile, the looming wave of US exports of liquefied natural gas, liquefied petroleum gas and petrochemicals figures to pinch overseas demand for crude as well in the longer run.

We believe there is significantly less downside risk in natural gas than in crude, which is why we have been recommending high-growth Marcellus drillers like EQT Resources (NYSE: EQT) and Cabot Oil and Gas (NYSE: COG) as well as companies like Chesapeake, Devon Energy (NYSE: DVN) and WPX that have prioritized the recently lucrative growth in crude output but remain primarily natural gas producers.

Of course, these names have run up a lot as well. But another group is only just emerging from a protracted and significant correction and figures to be a major beneficiary of lower domestic crude prices. That would be the refiners, which have been socked by the double whammy of soaring crude costs and declining gasoline prices.

The industry can’t expect a quick fix at the pump with gas prices at a nine-month low and expected to continue drifting lower next year as rising fuel efficiency saps demand. But it has already benefited from the WTI’s retreat and can plausibly expect a further discount in the not-too-distant future. So while the soon-to-be reported quarterly earnings will be bad, investors’ focus has rightly shifted to the still uncertain but likely more profitable future.

We’ve had the refining segment of our portfolio on Hold for much of the recent correction. Now Marathon Petroleum (NYSE: MPC) and HollyFrontier (NYSE: HFC) are modestly back in the black for us again, while Tesoro (NYSE: TSO) remains in the red. But if crude prices continue to retreat these stocks should follow Valero (NYSE: VLO) and Phillips 66 (NYSE: PSX) back above their 200-day moving averages and resume their longer-term uptrends.

Back in the Saddle

For the next few years at least US refiners should have access to some of the world’s cheapest feedstock and the most efficient machinery to convert that bounty into fuel, which can and will be competitively exported all over the world should US demand prove insufficient. Latin America and Africa have a rapidly growing demand for fuel, while European and Asian competitors will be paying more for their crude. Marathon Pete has the Gulf Coast refineries to take advantage of this trend, and so does Valero, the leading US fuel exporter. We’re upgrading MPC, TSO and HFC to Buy and adding Valero to the Growth Portfolio alongside these names. Buy MPC below $77, HFC below $53, TSO below $56 and VLO below $45.

But before you raise a penny from any of our big winners, do sell Westport Innovations (Nasdaq: WPRT), which we’re dumping from our Aggressive Portfolio at a loss of 12 percent through Tuesday. The supplier of engines running on natural gas simply hasn’t delivered on its many promises, and its inability to post a profit even in these conditions, which should be highly favorable, doesn’t augur well for the future. The growing attractiveness of gas as motor fuel is better played via drillers like EQT as well as conversion specialists like Fuel Systems Solutions (Nasdaq: FSYS), which we’re sticking with. Sell WPRT.