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Oil -- will probably trade from $62 to $65 this week depending how hot things get with Iran.

Hothead Watch (Focus Iran): Hostage redux, 28 years later. Ahmed, how 1979 of you. Let the British go. Unless you’re trying to prop up oil prices. This will do that, until you let them go which you will because the real power in your country will write nasty things about you in his newspapers.

Iran & the UN Watch: Iran becomes even less cooperative. If you’re splitting the atom for power (electricity) and not POWER (glass parking lots), then I’d think you be happy to show off your shiny new facilities. But having the Russians pull out and additional U.N. sanctions piled on is not the way to go if you just want to make kilowatts.

Natural Gas -- followed oil higher last week after an early season storage build nixed bulls hopes for a sub 1,400 Bcf trough. This morning gas is trading as much as a nickel higher to $7.31 as everyone eyes mounting tensions with Iran (which should have nothing to do with each other but this kind of thing pushes up all commodities).

Odds & Ends

CFTC -- speculators continue headlong into short territory. The CFTC reported a sizable build in the shorts of 23,400 contracts last week, yielding a net short position of 40,433 contracts. Check out the red line graph below; this is the lowest net position since February 2006.

Front Month Gas 26 03 2007

Merger Monday Watch (almost) -- ENSCO International Inc. (NYSE:ESV) says it’s open to bids. This won’t hurt the Oil Service HOLDRs ETF (NYSEARCA:OIH) today, and may in fact help propel it to a new 52 week high (> $149 from it’s current $147). BJ Services Company (BJS) and Baker Hughes Inc. (NYSE:BHI) are interesting down here, if you want to a play a service breakout to the long side.

Shell reopens damaged Nigerian pipeline. Closed since March 4, Shell announced it has reopened the 187,000 bopd pipeline today, and despite this all eyes remain focused on Iran and the 15 Britons.

Analyst Watch -- Pogo Producing Company (NYSE:PPP) falls from strong buy to sell at Matrix (or the kings of the 180 as I like to call them), Tesoro Corp. (NYSE:TSO) cut to neutral at Bear and to SELL at Deutsche, Sunoco Inc. (NYSE:SUN) cut to hold at Deutsche. Deutsche cited little further upside for the former, and what it sees as the beginning of topping margins on the east coast as justification for the downgrade of the latter. Guess I was a little early flagging TSO for a fall, eh?