Prices are climbing back towards $96 a barrel

Sweet light crude added $2.44, ending at $95.93 a barrel, after hitting $96.05 in earlier trade. London Brent settled $2.36 up at $92.08.

Fears of new UN sanctions against Iran are pushing prices up along with strong demand for oil from developing nations.

Many observers believe crude oil will break through $100 a barrel this year.

News late on Friday that the UN Security Council is looking into drafting new sanctions against Iran Friday as it continues with its uranium enrichment plans raised fears about potential shortages.

'Unknown territory'

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

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

We are stepping into an unknown area

Ken Hasegawa, Fimat Japan

What is driving oil prices up?

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.

Oil prices surged on Wednesday after a report 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."

Traders are bracing themselves for further rises

The weakening US dollar which has made oil, priced in dollars, cheaper to buy outside of the US has also fanned the price rises.

The dollar hit its weakest levels against the pound since 1981 on Wednesday.

Other factors supporting prices are concerns about the stop-start violence in Nigeria's main oil producing region and worries about the availability of heating supplies for the US winter.

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."