By Steve Gelsi, MarketWatch NEW YORK (MarketWatch) - A sharp sell-off took hold among energy stocks on Wednesday on a rise in weekly petroleum inventories and bearish sentiment surrounding retreating crude prices, capital spending cuts, and a historic emergency meeting by OPEC to cut production. Investors shrugged off double-digit earnings gains from ConocoPhillips and Baker Hughes and dumped energy stocks, which sank more deeply than the swooning broad market. Exxon Mobil fell 5% and Chevron fell about 6%, weighing on a 3.4% drop in the Dow Jones Industrial Average . The Amex Oil Index fell 7% and the Philadelphia Oil Service Index retreated nearly 9% after the latest petroleum data showed an increase of 3.2 million barrels in U.S. crude oil supplies. The Amex Natural Gas Index fell 7% and the Philadelphia Oil Service Index retreated nearly 9% after the latest petroleum data showed an increase of 3.2 million barrels in U.S. crude oil supplies. The Amex Natural Gas Index dropped 5.9% to 395. Ole Slorer, managing director, global head of energy and utilities at Morgan Stanley, said oil services stocks could mirror 1998/1999 with steep rallies and re-tests of lows. "Given concerns over demand destruction, spare OPEC capacity and 2009 earnings, oil service stocks could be plagued by volatility and randomness over the next six months," Slorer said on a conference call. "The Philadelphia Oil Service Index should break out of range-bound pattern as GDP revisions start moving up and story shifts back to supply," he said. Crude futures fell $3.26 to $68.92 ahead of weekly petroleum inventory data. See Futures Movers. Baker Hughes led the Philadelphia Oil Service Index in the minus column, down 16% to $32.84 after reporting a 10% jump in profit. See full story. ConocoPhillips subtracted 7% to $50.13 after posting 41% increase in third-quarter profit despite the impacts of Hurricane Gustav and Ike. See full story. Among energy stocks in the spotlight, CNX Gas Corp. fell 4% to $19.37. The company said net income doubled to $67.4 million, or 45 cents a share, from $31.3 million, or 21 cents a share. Revenue rose to $217 million from $110/7 million. The Pittsburgh marketer of coal-bed methane and natural gas from shale, which is 82% owned by Consol Energy , was expected to earn 45 cents a share on revenue of $198.4 million, according to a survey by FactSet Research.. Net income and production in the third quarter were the highest in its three-year history, the company said. Looking ahead, CNX Gas cut its 2008 capital spending target to $515 million from $552 million, and raised its 2008 production target to 74 billion cubic feet.

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