Oil climbed to settle near $61 a barrel yesterday, the highest closing price this year, after the government reported large drops in gasoline and heating oil inventories.

Tension between Western powers and Iran has boosted energy prices over the past two days; the U.N. nuclear watchdog group reported yesterday that Iran was still refusing to end its nuclear program.

Traders saw the report -- coming against the backdrop of lower petroleum inventories, hedge fund money pouring into commodities, and the coming driving season -- as a buying opportunity.

Light, sweet crude for April delivery rose 88 cents, to $60.95 a barrel on the New York Mercantile Exchange, after rising as high as $61.25. It was the first time crude traded above $61 since Dec. 29 and its highest closing price since finishing at $61.05 on that date. Crude has risen nearly 5 percent in two days.

Analysts said the rally has largely been driven by demand for petroleum products. Gasoline futures surged 5.01 cents, to $1.7548 a gallon yesterday, while heating oil futures rose 4.34 cents, to $1.7250 a gallon.

Crude inventories climbed by 3.7 million barrels, to 327.6 million barrels, in the week ended Feb. 16, the Energy Information Administration reported. But what stoked the market's advance were gasoline inventories falling by 3.1 million barrels, to 222.1 million barrels, and distillates, which include heating oil and diesel, dropping by 5 million barrels, to 128.3 million barrels.