Shares of natural gas and petroleum producers extended their hot streak on Monday as the sector tapped into a fresh $2 surge in oil prices on top of recent gains.

Crude prices gained 23% in the past week — the largest jump in 22 years, according to Pritchard Capital Partners. Oil service stocks have risen 22% since a low point on Dec. 5. Exploration and production stocks are up 33% from their Nov. 21 lows.

Catalysts for higher energy prices include the conflict in Gaza
between Israel and Hamas, a call from Iran to cut off oil sales
to countries that support Israel, and Russia’s natural gas
dispute with Ukraine.

Against this backdrop, crude prices accelerated gains from earlier in the session to close up $2.01 at $48.35 a barrel in regular trading on the New York Mercantile Exchange. The Amex Oil Index (XOI) rose 1.2% to 1,033. Refiner Valero (VLO) led the charge with a rise of more than 5% to $24.45.

The Amex Natural Gas Index (XNG) rose 4% to 411, breaking through the 400 level for the first time since Dec. 11. Component Questar (STR) rose 7% to $ 36.62 after a Barron’s article praised its results from the Haynesville shale.

The Philadelphia Oil Service Index (OSXX) jumped 3.5% to at
135. Components National Oilwell Varco (NOV) and Exterran
Holdings (EXH) both rose about 6%.

Adding a heavy dose of caution to the buying spree in the sector, UBS analysts downgraded 10 names from the oil service sector to neutral from buy while leaving six buy ratings intact in the face of slack demand for oil and eroding price power.

A recent move up from the group amounts to a bear market rally,
UBS said.

“In our minds, it’s about two things: when does global oil
demand start to turn up and when does the pricing pendulum
swing back in favor of the service companies?” said UBS
analysts, who expect oil prices to stay in the $50 a barrel
range through the spring.