Updated from 1:14 p.m. EST

Oil prices closed near two-month highs Thursday as Iran refused to back down from its plans to develop nuclear energy and traders focused on low gasoline inventories.

Crude for May delivery zoomed up 70 cents to settle at $67.15 a barrel on the Nymex. The contract has risen 5% this week on reduced gasoline supplies, supply disruptions in Nigeria and the ongoing nuclear tussle with Iran.

Unleaded gasoline rose 4 cents to a close of $1.99 a gallon, a five-month high, on concerns supplies won't be enough for the summer driving season. The expiration of the contract on Friday also contributed to some of the gain.

In a government report on Wednesday, gasoline inventories fell 5.4 million barrels to 216.2 million barrels last week. The drop was the largest since Aug. 2003, but inventories still remain slightly above last year.

Gasoline stockpiles are down because many refiners have shuttered their gasoline units for seasonal maintenance and to phase out methyl tertiary butyl ether, an additive linked to water pollution. Refiners have until May 31 to draw down their stocks of MTBE gasoline and to start making gasoline that can be blended with ethanol. But many traders believe refiners will not be ready for the changeover and shortages will erupt nationwide.

"There is a real risk that U.S. refineries will be unable to sufficiently bring back capacity in time for the summer driving season," said Rakesh Shankar, an energy analyst at Economy.com in West Chester, Pa. "This will force increased reliance on gasoline imports, and higher prices for consumers."

Refineries operated at 87% of their capacity last week, down from 91% last year. Fewer refiners online translated into buildups of crude, which is processed into gasoline and distillates, which include heating oil. Crude levels are now at their highest point in seven years. But the glut meant less gasoline and distillates were produced.

Low levels of distillates propped up the price of heating oil, which rose 3 cents to settle at a five-month high of $1.88 a gallon. Although inventories dropped 2.5 million barrels to 124.2 million barrels in the Energy Department's report, they remain 15% above last year thanks to a warmer-than-usual winter.

Mild weather has boosted supplies of natural gas, which is used to heat homes and businesses, 37% over last year, and 62% above the five-year average. In an Energy Department report Thursday, inventories fell by 104 billion cubic feet to 1.7 trillion cubic feet.

Analysts polled by Bloomberg had expected a draw of 86 billion cubic feet.

Natural gas climbed 3 cents to finish at a six-week high of $7.48 per million British thermal units. Utilities switching over to natural gas from more expensive petroleum products have boosted natural gas prices.

Supply problems or the threat of them kept traders on edge. On Thursday, Iran rejected a unanimous U.N. Security Council statement hammered out late last night that called for an end to its uranium enrichment. The Tehran government vowed to continue with uranium enrichment, ostensibly for the purposes of producing more nuclear power for its growing population and not, it claims, for a suspected weapons program.

The five Western members of the council will met Thursday in Berlin to discuss further steps. The group has also asked the International Atomic Energy Agency, its nuclear watchdog, to report on Iran's progress in ending uranium enrichment in 30 days.

The standoff with Iran has helped put a floor under crude prices for the past two months. Until this week, crude had been trading between $60 and $64 a barrel, breaking out on Monday as the Security Council vote neared.

"The prolonged drama probably explains why markets have not done much of anything in response to the news," said Edward Meir, an energy analyst at Man Financial in Darien, Ct. "Participants have perhaps concluded that things will take a lot longer to come to a head -- if they do at all."

Ongoing rebel attacks on Nigeria's oil installations and kidnappings of petroleum workers have also kept traders on edge. The country's daily crude output is down by 26% to 1.6 million. Royal Dutch Shell has lost around 455,000 barrels of crude per day and has refused to restart those operations until the safety of its workers is assured.

Some of the country's lost production is starting to come back online. Italian oil company Agip, a unit of Eni ( E), said Thursday it had finished repairs on a pipeline that carries 75,000 barrel crude and could now honor export commitments from its Brass River terminal. Rebels blew up the pipeline and caused a spill on March 17.

The Venezuela oil minister said on Thursday that ExxonMobil ( XOM) was no longer welcome because the world's largest oil company has spoken out against tax hikes, increased royalties, and contract changes. Venezuela is attempting to renationalize its oil industry and is trying to revert control of 32 oil fields back to state control. Exxon, rather than give up its oil field stake, sold a field to its partner, Repsol YPF S.A. ( REP).

Exxon shares fell 6 cents to $61.22.

Patterson-UTI Energy ( PTEN), an oil and gas driller, saw its fourth-quarter earnings jump 84% to $531.2 million, exceeding estimates of $510.4 million. Revenue climbed nearly 95% to $459.8 million as high energy prices compelled companies to explore for more oil and gas.

Investment firm Morgan Keegan upgraded the stock to outperform on the news, and the company's stock soared $2.20, or 7%, to $32.55.

Occidental Petroleum's ( OXY) stock was hammed after Friedman Billings Ramsey, an investment firm based in Arlington, Va., downgraded the oil and gas producer from outperform to market perform. Analysts there said falling crude prices this year and the company's legal dispute with Ecuador over taxes, investments and revenues.

Occidental shares ended down $1.29, or 1.4%, to $94.32.

Burlington Resources ( BR) shareholders gave the go-ahead to the proposed $35.6 billion takeover by ConocoPhillips ( COP) on Thursday. More than 98% approved of the merger, which will give Burlington shareholders $46.50 in cash and 0.72 shares of Conoco for each of their shares.

Burlington shares dipped 9 cents to $93.01, while Conoco shares lost 18 cents to $64.62.

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