Updated from 1:43 p.m. EDT

Crude prices closed at a record high above $71 a barrel Tuesday as concerns lingered about the reliability of Iranian supply lines.

Light, sweet crude for May delivery rose 95 cents to $71.35 a barrel, a new closing high for a front-month contract. The price eclipses the old intraday high of $70.85, set after hurricanes damaged much of the Gulf Coast's oil industry.

The contract went as high as $71.60 duing the session.

"Fear is the driver and remains so," says Kyle Cooper, director of research at IAF Advisors in Houston. "While inventory trends have been bullish, absolute levels remain bearish. It is not considered likely that any oil flow from Iran is disrupted, but it is possible."

The rally in oil prices has followed claims by Iranian officials that the country has restarted uranium enrichment after a two-year hiatus, defying Western threats. Iran's president, Mahmoud Ahmadinejad, has vowed to expand nuclear development activities, saying they're needed to meet burgeoning electricity demand.

On Tuesday, President Bush told reporters at the White House that "all options are on the table" in retaliating against Iran. Still, Bush said he preferred to "solve this issue diplomatically, and we are working hard to do so,"

Bloomberg

reported.

Reports have circulated since last week that the U.S. administration has discussed the use of tactical nuclear weapons to hit underground nuclear sites in Iran. European and U.S. authorities are worried Iran's nuclear development program will eventually lead to weapons production. The U.N. has repeatedly threatened unspecified sanctions if Iran doesn't halt the enrichment.

The escalating conflict with Iran has roiled the energy markets and kept oil prices above $68 for the past week. Traders are concerned crude exports from Iran, OPEC's second-largest producer, could be cut. Although Saudi Arabia is the world leader in oil output, it doesn't have enough to make up for any shortfall in Iranian production. Iran produces around 4 million barrels of oil per day, while Saudi Arabia only has around 2 million barrels of extra crude.

Lower crude exports from Nigeria, where rebels have cut production by 26%, or 641,000 barrels, have also boosted prices. Militants in the oil-rich Niger River Delta have blown up pipelines, attacked platforms and taken foreign workers hostage in their campaign to gain a share of the country's oil wealth for the region.

Crude prices have also been buoyed by record inflows of money from hedge funds and institutional money managers and attract more money when they soar. Over the past three years, funds have doubled their investments in commodities from $100 billion to $120 billion, according to Barclays Capital.

"We look for today's gains to possibly be accentuated by sufficient hoopla surrounding the record crude highs to attract another dose of investment fund capital into the complex," says James W. Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

Although oil prices are at all-time highs, there is plenty of domestic stockpiles to make up for supply glitches. Oil inventories are at seven-year highs, and are expected to climb 2.6 million barrels from 346 million barrels in the U.S. Energy Department's weekly update due out at 10:30 a.m. EDT Wednesday.

Crude, which is processed into gasoline and heating oil, has been building up at refineries as they undergo heavy maintenance. Gasoline supplies, which are 2% below their levels of this time last year, are expected to drop 2.2 million barrels from 207.9 million barrels, according to analysts polled by

Bloomberg

. Distillates, which include heating oil and jet fuel, will probably decline 1.2 million barrels from 117.4 million barrels.

Skyrocketing oil prices were pulling up futures of unleaded gasoline, heating oil and natural gas. Unleaded gasoline was last adding 5 cents to $2.22 a gallon and heating oil was rising 3 cents to $2.04 a gallon. Natural gas was gaining 43 cents to $8 per million British thermal units.

For the past 20 years, gasoline prices have jumped during the spring, but this year, the gain is more than usual. Gasoline prices have risen 23% since February thanks largely to new fuel requirements and a switch to more environmentally friendly summer blends. Refiners are scrambling to phase out methyl tertiary butyl ether, a gasoline additive linked to water pollution, for ethanol by May 5, when they lose liability protection.

This week marks the beginning of the earnings season for many energy companies. Among those reporting Tuesday was

Peabody Energy

(BTU) - Get Report

, which said net income rose 151% to $130.2 million, or 48 cents a share, in the first quarter thanks to higher coal prices and increased demand for the company's low sulfur Western coal. First-quarter revenue climbed 22% to $1.31 billion.

Peabody shares gained $3.76, or 7%, to $55.12.

Energy shares were following oil prices higher in trading Tuesday, with

ConocoPhillips

(COP) - Get Report

,

Valero Energy

(VLO) - Get Report

,

Exxon Mobil

(XOM) - Get Report

, and

Schlumberger

(SLB) - Get Report

among the volume leaders on the

New York Stock Exchange

.

ConocoPhillips was up $1.52 to $69.85; Valero was adding $1.32 to $66.97; Exxon was increasing 89 cents to $62.94, and Schlumberger was soaring $1.33 to $63.93.