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Crude advances on drop in gas, heating oil supplies

Oil futures traders at the New York Mercantile Exchange. Crude settled up at $60.95 a barrel. (Stephen Hilger/Bloomberg News)

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

Tensions between Western powers and Iran have also boosted energy prices over the past two days; the United Nations' nuclear watchdog reported yesterday that Iran is still refusing to end its nuclear program.

"It's a great excuse to buy today," said James Cordier, the president of Liberty Trading Group in Tampa. The UN report was hardly a surprise, and Cordier pointed out that it doesn't change the fundamental supply and demand picture right now.

Light, sweet crude for April delivery rose 88 cents to settle at $60.95 a barrel on the New York Mercantile Exchange -- after spiking as high as $61.25. 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 settle at $1.7548 a gallon while heating oil futures rose 4.34 cents to $1.7250 a gallon.

US crude inventories climbed last week, the Energy Information Administration said. 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.

Most of the distillate drop was caused by high demand for heating oil supplies.