Aug. 3 (Bloomberg) -- If insider selling is any guide, the stock-market rally for energy companies may be waning.

Sales of shares by officers and directors at oil refiners climbed to a record in July, according to a scoring system used by the Leuthold Group since 1999. Among a broader group of 142 energy producers, insider selling peaked in May, according to Leuthold, a research and investment firm that counts two-thirds of the 100 largest U.S. money managers as clients.

Executives at Valero Energy Corp., the largest U.S. refiner, and XTO Energy Inc., an oil and natural-gas producer, were among those selling stock.

``The insiders do tend to have pretty good insight in terms of what they're doing with their own money,'' said Andy Engel, who helps oversee $2.5 billion as co-manager of the Leuthold Core Investment Fund. ``The energy composite area is one area where the insiders seem to have been fairly accurate.'' The Minneapolis-based firm has about 1 percent of its holdings in energy stocks, down from 13 percent two years ago.

Energy stocks have risen 19 percent this year, the biggest gain among 10 industry groups in the Standard & Poor's 500 Index. The S&P 500 has added 2.4 percent. Oil and gas stocks posted the steepest advances in the benchmark in 2004 and 2005, climbing 29 percent in both years.

Executives sold shares even as crude advanced to an all-time high in July and analysts increased third- and fourth-quarter earnings forecasts for oil and gas companies.

U.S. securities laws require company officers and directors to disclose stock purchases or sales. Investors such as Engel track the transactions on the presumption the trades give clues to companies' prospects.

Greater Weight

Leuthold calculates indexes of insider transactions by industry. The firm weighs the importance of trades according to the seniority of the officials, the percentage change in their holdings, the price of the sale, the market value of the company and the ease with which the stock can be traded.

Valero ranked third among S&P 500 companies in total sales by insiders in each of the first two weeks of July, according to data compiled from Securities and Exchange Commission filings by Washington Service. The stock has soared more than sevenfold in the past five years, including a 55 percent gain in the past 12 months.

William Greehey, the San Antonio-based company's chairman and former chief executive officer, sold 266,972 shares in the two-week period ended July 7 for $17.9 million.

President Gregory King sold 110,134 shares during the week ended July 7 for $7.38 million. Executive Vice President Eugene Edwards sold 110,000 shares for a total of $7.25 million in the week ended July 14.

Oil's Record

Oil reached a record $78.40 a barrel on July 14 as fighting in Lebanon between Israel and Hezbollah forces sparked concern the violence may spread through the Middle East. Crude closed today at $75.81.

Valero's policy is to provide a ``significant portion'' of executives' long-term compensation through stock options, said Mary Rose Brown, the company's vice president for corporate communications.

``Because of this philosophy and their strong belief in the company's bright future, Bill Greehey, Greg King, Gene Edwards and our other executives have held onto the vast majority of their stock and stock options throughout their careers with Valero,'' she said in an e-mailed statement.

Since Greehey stepped down as chief executive at the end of last year, he has sold only 6.8 percent of his shares and used much of the proceeds for charitable donations, she said.

Selling to Diversify

``Mr. King and Mr. Edwards also have held their stock and options for very long time periods, and only sold a portion of their holdings recently to diversify their investments -- something any good financial planner would recommend,'' she said.

Oil's rally has prompted analysts to increase their third- quarter profit estimates for S&P 500 oil and gas companies over the past four weeks by 1.5 percent, and 1.3 percent for the fourth quarter, according to data compiled by Thomson Financial. Third-quarter estimates for the majority of industries have been cut over the same period.

Michael Barron of Knott Capital Management said he's concerned that oil's advance won't be sustained because it may be built on a geopolitical ``fear premium'' rather than supply and demand. The insider-trading data suggests to him that energy executives may share that outlook.

`Hitting Ceilings'

``That may be another validation that what you've seen as far as moves in commodity prices may be hitting ceilings,'' said Barron, who manages about $1 billion as Knott Capital's chief executive officer in Exton, Pennsylvania. ``When insiders are selling their stock, it never gives portfolio managers or analysts great comfort.''

Barron has a smaller percentage of his investments in energy shares than the industry's representation in the S&P 500. He was ``overweight'' the group from 1999 to 2005. Knott Capital started reducing its energy holdings in September, on expectations that surges in fuel prices spurred by Hurricane Katrina wouldn't last.

While oil futures reached new highs this year, natural-gas prices peaked in December at a record $15.78 per million British thermal units. Gas futures have fallen by about half since then, even after a 40 percent jump in the past two weeks.

`Fuel to the Fire'

XTO Energy, a Fort Worth, Texas-based natural-gas producer, ranked second among S&P 500 companies in total sales by insiders in the first week of July, according to data compiled by Washington Service. Like Valero, the shares have risen more than 600 percent in the past five years. XTO has risen 36 percent in the past year.

Chief Executive Officer Bob Simpson sold 575,000 shares for $25.5 million, while Senior Executive Vice President and Chief of Staff Vaughn Vennerberg sold 102,783 for $4.56 million.

Louis Baldwin, the chief financial officer, also sold shares worth $3.13 million, while President Keith Hutton sold $1.34 million and Executive Vice President Timothy Petrus sold $1.11 million in stock.

Gary Simpson, XTO's senior vice president for investor relations, didn't return three calls for comment this week. His assistant said he was traveling outside the country and couldn't be reached.

``It's not just the chairman selling more than he usually does, it's actually more people in these companies saying, `Hey, I should take some off the table,''' said Christopher Wolfe, director of research at Dover Management LLC in Greenwich, Connecticut. ``I do think energy stocks look expensive here, and it just adds fuel to the fire to say maybe we should take some of the weighting down.''

To contact the reporters on this story: Daniel Hauck in New York at dhauck1@bloomberg.net; Dune Lawrence in New York at dlawrence6@bloomberg.net.

Last Updated: August 3, 2006 05:57 EDT