Updated from 12:35 p.m. EDT

Oil prices finished a volatile session higher Tuesday, as midday profit-taking gave way to another round of buying amid more troubling reports out of Iran.

May crude gained 24 cents to close at a seven-month high of $68.98 a barrel in Nymex trading; it went as high as $69.25 during the session. The rise followed news that Iran had successfully enriched uranium for the first time, according to Iranian President Mahmoud Ahmadinejad.

Oil is within $1 of its all-time record high of $70.85, touched after Hurricane Katrina shut down much of the Gulf Coast's oil industry. On Monday, crude prices jumped $1.35, or 2%, to settle at $68.74 after an article in the

New Yorker

ignited concerns the U.S. was considering strikes on Iranian nuclear facilities.

President Bush dismissed the article Monday as "wild speculation" and said the U.S. wanted to resolve the impasse over Iran's nuclear development activities diplomatically. But Bush did not deny the report outright.

"Few really believe that the U.S. is close to launching any kind of military attack on Iran, but the mere mention of the possibility was apparently enough to give traders another reason for buying in this complex," said Peter Beutel, president of Cameron Hanover, an energy risk management firm in New Canaan, Conn.

Iran restarted small-scale uranium enrichment in February, ostensibly to generate more electricity for its expanding population. The West fears the move is a ruse to build atomic bombs. The U.N. Security Council called on Tehran last week to cease its nuclear activities and gave it 30 days to do so.

Economic sanctions could be imposed against Iran but are viewed as unlikely, because the country is OPEC's second-largest oil producer, with daily output of about 4 million barrels. There is not enough extra oil to make up for Iranian output if a trade embargo is slapped on the country. Saudi Arabia, the largest crude producer, has only about 2 million barrels in excess capacity.

"It is impossible to quantify fear. Fear of confrontation between Iran and the U.N. continues to drive this market. There appears to be little else in the market," said Dave Rinehimer, director of futures research at Citigroup Global Markets. "The weekly inventory changes will likely be perceived as bullish despite overall inventory levels that remain bearish."

The recent spike in crude prices comes despite surplus inventories, which typically dampen prices. But razor-thin supply margins have set traders on edge and forced them to bid up prices every time there are real or potential supply problems.

Crude inventories now stand at 342.8 million barrels, the highest level since April 1999, and are expected to climb another 1.2 million barrels in the Energy Department's weekly stockpile report due out Wednesday at 10:30 a.m. EDT.

Stockpiles of crude, which is processed into gasoline and other products, have been building up because of heavy refinery maintenance. Refiners have been racing to meet new fuel requirements by May and to switch over to summer blends of gasoline.

Refiners probably operated at 86.2% of their capacity last week, according to analysts surveyed by

Bloomberg

, slightly above the previous week. Maintenance schedules have been prolonged this year because refineries have to phase out methyl tertiary butyl ether, an additive that reduces tailpipe emissions, in favor of ethanol.

Heavy refinery outages have resulted in a 6% decline in gasoline inventories over the past month.Supplies are expected to drop 2 million barrels from 211.8 million barrels last week, according to a

Bloomberg

survey of analysts.

Tight stockpiles and a government report projecting higher prices this summer helped prop up gasoline futures. Wholesale gasoline rose 1 cent to settle at $2.01 a gallon on the Nymex.

This summer, U.S. drivers are expected to pay an average $2.62 a gallon, 25 cents more than last year thanks to high oil prices, heavy demand during the peak driving season and an increase in distribution and production costs associated with the switch to ethanol. The Energy Department cautioned in its short-term energy outlook that prices could be volatile in the latter half of the summer if hurricanes or tropical storms damage refineries.

Mild winter temperatures and surplus stockpiles have helped dampen heating oil and natural gas prices. Heating oil lost 2 cents to close at $1.92 a gallon, and natural gas ended 2 cents up at $6.90 per million British thermal units.

There is 36% more natural gas and 16% more distillates, which include heating oil, in storage now than at this time last year. Analysts surveyed by

Bloomberg

were calling for a 1.5-million-barrel decline from 121.6 million barrels in distillate stockpiles last week.

In trading Tuesday, shares of

BP

(BP) - Get Report

were climbing 26 cents to $72.58 after analysts at Deutsche Bank repeated its buy rating on the international oil company, while shares of

Frontier Oil

(FTO)

were down $3.56 to $55.91 after Credit Suisse cut the refiner's rating to underperform.

ConocoPhillips

'

(BP) - Get Report

stock was last ising $1.10 to $67.80. On Monday, one person was killed and four injured when the roof of a fuel storage tank at the company's Los Angeles refinery collapsed.