By Steve Gelsi

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.

UBS maintained buy ratings on Halliburton (HAL) and Baker Hughes, but downgraded Schlumberger (SLB), Weatherford (WFT) and BJ Services (BJS) to neutral.

UBS kept buy ratings on Transocean (RIG), Noble Cop. (NE) and Atwood Oceanics (ATW), but cut shares of Diamond Offshore (DO) and Ensco (ESV) to neutral and assigned a sell rating on Hercules Offshore (HERO).

Among energy stocks in the spotlight, Chesapeake Energy Corp. (CHK) rose 6% to $18.32. The company said it sold volume from various assets in the Anadarko and Arkoma Basins for $412 million, conveying a royalty interest to investors associated with Argonaut Private Equity.

Assets sold include proved reserves of approximately 98 billion cubic feet equivalent. Under the deal, termed a "production payment transaction," Chesapeake retains drilling rights on the properties below currently producing intervals. The Oklahoma City-based natural gas company said the move was part of efforts to build up cash reserves. The purchase was financed by GS Loan Partners, an affiliate of The Goldman Sachs Group, Inc.

Soleil Securities on Monday downgraded Tesoro Corp. (TSO) to sell from hold after a 64% run-up in the refining giant's share price in the past month.

Tesoro could be facing threats from imports now that Reliance Petroleum's Jamnagar refinery in India has started up. Refining margins on the West Coast improved in the second half of December because of lower production, but refinery utilization rates have been rising and demand remains weak, Soleil noted.

Shares of Tesoro nevertheless rose 1.7% to $14.03.

-Steve Gelsi; 415-439-6400; AskNewswires@dowjones.com

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