To be an energy investor today is to know pain and fear.

The fear, of course, is that the painful losses of recent days will only grow worse. There is no shortage of doomsayers already drawing parallels to the energy collapse of 2008-09, discussing a supposed Saudi plot to drive down oil prices or forecasting bankruptcy for many shale drillers.

And while none of these theories is likely to be proven right, right now they’re one and all more topical than the enthusiasm about the shale miracle, among other stories, that briefly made energy stocks the market darlings in the spring. The circumstances that made those hopes possible aren’t likely to return any time soon. And that means that the losses certainly could grow, and will almost certainly linger.

That’s not an easy message to sell. We all hate letting go of the belief that we’ve amassed a portfolio filled with value, to be unlocked soon once everyone else catches on. But good investors know that’s frequently not the case, just as they know that the first priority of investing is to preserve capital. And energy investors who have ridden multiple booms and survived just as many busts have learned the hard way to adjust their playbook accordingly.

Is this energy correction the beginning of a bust? Probably not, but the jury’s out now. And whatever label one chooses to apply to the current market environment it’s not medium-term bullish, that’s for sure.

Our conviction in our portfolios’ long-term value needn’t obscure the message of the markets, which is that the energy sector is firmly back in investors’ doghouse and deservedly so at the moment, as worries about a growing imbalance between rising crude supply and now less briskly growing global demand depress prices.

Two weeks ago I thought the selling had been overdone, and now it obviously looks even more so. The next bounce, which is already overdue, will offer a valuable opportunity to reduce your energy exposure, starting with the riskiest and most leveraged positions.

We’ve been counseling profit-taking in several such drilling stocks since April, and will continue taking opportunities to do so as they’re presented, but won’t be panicked  into doing so while the sector is as oversold as it is right now. Over time, we will be shifting the balance of our portfolios away from the more speculative plays and toward steadier, more conservative holdings, and believe you’d be wise to do the same.

What you should not do even at this lower price is to add to your energy sector positions. This is now a sector with high risk and limited reward over the near term.  With crude breaking aggressively below a multi-year trading range, this is not the time to go bargain hunting, even if you’ve always wanted that fracking sand supplier at 41% off its August high.

To underscore this point, we’re changing the rating on all our current Buy recommendations to a Hold. It doesn’t mean we believe in their long-term value less, but it does mean we expect less of that value to be realized in the near term. The Best Buy designations will remain even on the Hold-rated stocks, conveying our best ideas for the long term. Many of these Holds will go back to being Buys as developments warrant. Unfortunately, we expect to be able to recommend buying more of these stocks down the line below their current price.

We’re also researching several new potential buys that offer solid value, and will likely be recommending their purchase once the dust settles a bit.  

What’s changed over the last two weeks? It obviously starts with the price action both in crude, which has dropped 12% in this span, and in related equities. The Energy Select Sector SPDR ETF (NYSE: XLE) has now broken decisively below its 200-day moving average on high volume, and is down 14% over the last six weeks. But that doesn’t really convey the extent of the damage beyond the supermajors. Over the same span, Aggressive Portfolio holding Emerald Oil (NYSE: EOX) has plunged from $8 and change to $4 and change. Offshore producer Energy XXI (Nasdaq: EXXI) was above $23 on July 1 and is below $8 now. Aggressive distribution, erratic trading action, rising volume: all the clues are there that this is the onset of a downtrend rather than merely an extremely unfortunate episode.

The macro omens, too, have turned grimmer over the past fortnight. Europe’s shrinking again, China is putting the screws to its inefficient heavy industry even as housing prices continue to slide, and the ripple effects from China’s moves are hitting commodity suppliers from Brazil to Indonesia and Australia. And now you can add all the crude exporters to the list.

There’s really no need to manufacture a Saudi plot. The Saudis cut their reference price on Asian cargos by all of a dollar a barrel. They’re not especially happy with several of their OPEC partners on a number of fronts and are tired of being the only OPEC supplier with much spare capacity.

But they’re not tired of making money, so why would the Saudis risk spooking the oil markets as they have? Because they, like everyone else, can see the near-term mismatch between a shale production boom that hasn’t slowed down one bit on the supply side, while the quickly dimming global growth outlook cools demand.

If global growth will be so weak as to require significant cuts in crude output, the Saudis don’t wish to bear the entire brunt. And if the slowdown in demand growth ends up prolonged, a willingness to compete for market share now puts the Saudis in a stronger position to push other OPEC members for production cuts down the line.

Over the next year or two, global supply and demand are likely to balance not much below the current price and possibly back above it. But in the near-term market fundamentals could well push crude even lower after a bounce, because stockpiles are plentiful and shale production is likely to keep growing briskly into next year, since many producers are well-hedged and, for the moment, generously financed.

The futures market harbors an unknown number of beached whales like, potentially, Andrew John Hall, the reputed God of Crude Oil Trading who has bet billions on long-dated crude contracts in the belief the shale production will sputter before long.

On the demand side, it’s no longer quite clear where growth will come from. The US economy looks in best shape of any in the G20, and even at a steady 2% growth clip it’s consuming just 0.7% more crude than last year.

Of course, a cold winter, another Libyan shutdown or the fall of the current Iraq regime could change all that bearish calculus in a flash. In the long run, lower fuel prices should stimulate demand in emerging markets and even in the US, where consumers are once again buying more SUVs.