It's tempting to look at the price of a barrel of oil, or the price of a gallon of gasoline as a way to evaluate when oil companies are cheap.

But there's little correlation between oil price and profitability, value or future share price for most of the companies in the oil sector. There are a few exceptions that I'll talk about in a minute...

Not to go into too much detail, but most oil companies, large and small, hedge their production in the futures markets. When you hedge your production, it has the effect of evening out the highs and lows in the market.

You can easily see the effect of hedging by looking at two charts stacked on top of each other: the percentage performance of a price of a barrel of oil plotted with the percentage performance of the AMEX oil index (AMEX: ^XOI).

The AMEX oil index compiles the price movement of the 13 largest publicly traded oil companies. And no, you can't buy it - unfortunately it's not a traded index.

Yesterday I discussed the overwhelming importance of oil and its implications for your investments.

My most important advice in yesterday's issue was buried down at the bottom, so you might have missed it. Here it is to recap:

"if I can leave you with one thing to keep in mind, it's to remember the importance of oil - even for non-commodity investments. You need to look at all of your investments, from stocks even down to bonds and savings accounts, and think about how oil price fluctuations could affect the bottom line of the underlying assets and businesses you're invested in."

I also promised that I would look into some specific oil investments to buy under the assumption that the recession has resumed or is on the horizon.

During a recession, oil prices tend to sag due to decreased demand for oil, which doesn't usually bode well for most types of oil companies.