Updated from 12:54 p.m. EDT

Oil prices marched to their highest close since late January on Monday, nearing $69 a barrel on fears the Bush administration is planning military action against Iran over its nuclear development activities.

Light, sweet crude for May delivery ended floor trading up $1.35, or 2%, at $68.74 a barrel. Gasoline futures rose 4 cents to $2.02 a gallon.

The U.S. is looking at a range of military options against Iran, the world's fourth-largest oil producer, if the country does not cease its nuclear development activities, according to the

New Yorker

magazine.

Although senior advisers to Bush said the U.S. is seeking diplomatic solutions to the impasse, they did not deny the report. Meanwhile, European foreign ministers are meeting in Luxembourg today to discuss measures they can take against Iran, including travel bans and an end to export tax credits.

After a two-year hiatus, Iran resumed nuclear research in February -- ostensibly to generate electricity for its growing population. The West, though, believes Tehran wants to build atomic bombs. The U.N. Security Council called on Iran to end nuclear development last week and gave it 30 days to do so. Economic sanctions could be imposed on Tehran if it continues to defy the West.

Still, economic sanctions would drive up crude prices and restrict already razor-thin supplies. There is not enough oil to make up for any cuts in Iranian stockpiles because growing Asian and American economies have boosted demand for crude. Saudi Arabia, a source for excess crude, has around 2 million barrels of crude, not enough to make up for Iran's daily output of 4 million barrels.

Lower crude production in Nigeria was also propping up oil prices. On Monday,

Royal Dutch Shell

(RDS-A)

officials said they had not restarted an offshore field that pumps 120,000 barrels per day. The oil giant's head of exploration and production had said on Friday that production would soon start. Thanks to ongoing rebel attacks, Shell has lost around 455,000 barrels of daily crude output.

Nigerian militants have been blowing up pipelines and platforms and kidnapping workers in the oil-rich Niger Delta to win a share of the country's oil wealth. More than half of the Nigerian government's budget comes from petroleum sales. Around 27% of the country's petroleum exports, or 641,000 barrels a day, have been lost to the attacks.

The spike in crude futures was lifting the rest of the energy complex on Monday. Heating oil was rose 6 cents to $1.95 a gallon. Natural gas was increasing 16 cents to $6.90 per million British thermal units.

The higher prices came despite surplus inventories of natural gas and heating oil. There is 36% more natural gas and 15% more distillates in storage now than a year ago, thanks largely to a mild winter. Both fuels are used to heat homes and businesses.

Gasoline stockpiles are slightly below last year because refiners have cut back their production as they switch over to new fuel requirements. Gasoline supplies have plummeted for the past five weeks and now stand at 211.8 million barrels, slightly below a year ago, because of heavy refinery maintenance and rising demand.

Refiners have until May, when their protection from water pollution lawsuits ends, to replace methyl tertiary butyl ether with ethanol. The federal Energy Act of 2005 dropped liability protection for refiners, and refiners don't want to be responsible for water pollution caused by MTBE, a gasoline additive that reduces tailpipe emissions.

In trading, the

U.S. Oil Fund

(USO) - Get Report

, an exchange-traded fund designed to track the price of West Texas crude futures, made its debut on the

New York Stock Exchange

on Monday. The ETF represents shares in an oil pool and other commodities and trades throughout the day like a stock.

Shares of energy companies were soaring in tandem with higher oil prices.

Exxon Mobil

(XOM) - Get Report

rose 1% to $61.96;

Chevron

(CVX) - Get Report

added 1.5% to $59.55, and

ConocoPhillips

(COP) - Get Report

gained 1.4% to $66.86.

Investment firm Raymond James increased its ratings on a range of oil and gas companies on Monday, ranging from

Chesapeake Energy

(CHK) - Get Report

to

XTO Energy

(XTO)

and

Occidental Petroleum

(OXY) - Get Report

. Shares of Chesapeake gained 1.5% to $31.75; XTO rose 1.2% to $44.86, and Occidental was up 1.5% to $96.54.