Oil prices have retreated after breaching the $96-a-barrel mark and analysts expect volatility ahead.

A combination of strong demand and geopolitical issues is causing oil prices in the US to spiral

Crude oil fell $1.04 to $93.49 a barrel by end of trade in New York after hitting $96.24 in overnight trade. Brent crude shed 91 cents to $89.72.

Even as prices retreated, analysts said that crude oil would probably break through $100 a barrel this year.

Strong demand from developing nations and a weak US dollar are likely to keep pushing prices up, they said.

There are also concerns about geopolitical issues such as a clash between the US and Iran, and an escalation of hostilities between Turkey and rebel Kurdish fighters based in the northern areas of Iraq.

The problem facing oil markets and analysts is that all of the factors are combining to create a high level of uncertainty in the market and this, in turn, is driving prices higher.

Sell signs

Oil prices surged on Wednesday after a report that showed domestic US crude stocks fell by 3.9 million barrels last week, worrying analysts who had forecast an increase of 100,000 barrels.

The US is the world's biggest energy consumer and the state of its inventories is a key concern for market watchers.

"We are stepping into an unknown area," said Ken Hasegawa, a broker at Fimat Japan, of the latest price spike.

"Nobody wants to sell, given the fear of a further rise."

Fixing denied

Oil producers' body Opec continues to be criticised for not doing enough to restrain prices despite agreeing to lift daily output by 500,000 barrels, an increase which came into effect on Thursday.

A senior Opec official said the organisation was not to blame for the price rises and insisted there was no shortage of capacity in the market.

"We never fix oil prices," said Abdullah al-Attiyah, Qatar's energy minister.

"It is market driven and it is out of control."

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Sources: http://news.bbc.co.uk

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