Updated from 3:10 p.m. EDT

Crude oil prices jumped back above $35 Friday, at the end of a volatile week that saw prices soar to 10-year highs despite an agreement from the

Organization of Petroleum Exporting Countries

to boost supplies.

Industry analysts blame price volatility in part on mixed messages from OPEC, whose president was reported as saying that prices could still hit $40 a barrel despite the cartel's decision Sunday to boost its output ceiling by about 800,000 barrels a day next month to ease prices.

In addition, there was growing concern Friday over renewed tensions between OPEC members Iraq and Kuwait and reports of a tropical storm that threatens oil production facilities in the Gulf of Mexico.

President Clinton's

assurances Friday that rising oil prices would not lead to a recession in the near term also raised doubts about whether he would release oil from the

Strategic Petroleum Reserve

to counter high crude prices.

Phil Flynn, an analyst at

Alaron Trading

, said the oil market remains strong, but is vulnerable to wild swings. "The bottom line is we still have near record-setting low supplies and no amount of simple 'talk' is ever going to change that," he wrote in a research report released Friday.

According to data released this week by the

American Petroleum Institute

, an industry group, crude oil inventories decreased by 1.94 million barrels last week to about 288.6 million barrels -- far below last year's levels. The

Department of Energy

reported a slightly smaller draw of 1 million barrels last week, though it said the current inventory is just 288.5 million barrels.

Industry analysts have repeatedly warned that if inventories remain this low, prices are likely to soar in the upcoming months as the temperature drops and demand grows for crude oil and distillate products like heating oil.

While OPEC agreed Sunday to boost its oil production ceiling by 3%, or 800,000 barrels a day, starting Oct. 1, analysts say the net increase is likely to be far lower.

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The production quota increase is more than the half million barrels a day recommended under the organization's price band mechanism if the "basket" oil price remains above $28 for 20 consecutive days, as it had by last Friday. Still, while the latest

increase raises OPEC's output target to 26.2 million barrels a day, there are questions about whether some of the cartel's members are even capable of meeting the new output level.

Many OPEC members are already producing at or above capacity. Only Kuwait, the United Arab Emirates, and kingpin Saudi Arabia, the world's largest oil exporter, are believed to have enough capacity for substantial production increases.

GNI

, a financial services firm, said that their oil output in August was already higher than the newly approved production ceilings.

That means the new agreement may simply legitimize the current "cheating" among members. Further confusing matters were reports that OPEC President Ali Rodriguez said that crude oil could still reach $40 a barrel, though he thought that price level would be unsustainable.

OPEC has agreed to meet again on Nov. 12 to reassess oil supplies and prices. In the meantime, the oil cartel will maintain its price mechanism, which aims to keep oil in its basket (which includes blends from Algeria, Indonesia, Saudi Arabia and Venezuela) between $22 and $28 a barrel.

But few believe prices will fall that low before next year.

In fact,

PaineWebber

increased its oil price forecasts on Friday, raising its benchmark West Texas Intermediate crude oil estimates to $31.55 a barrel in the third quarter -- up $4.55 from its earlier estimates. By year's end, the firm forecasts prices will come down just slightly to $29 a barrel, sharply higher than its earlier projection of $23.50.

PaineWebber analyst Christopher Stavros said the firm decided to increase its oil price forecast to reflect the recent strength in oil prices, and the lower-than-normal inventory levels for both crude oil and refined oil products like diesel fuel and heating oil. PaineWebber also raised its earnings estimates for the 11 major oil companies it covers, adding that oil shares are nearly fully valued based on the current "high commodity price environment."

The

Philadelphia Stock Exchange Oil Service Index

finished up 2% while the

American Stock Exchange Oil and Gas Index

ended up 3%. The benchmark October contract for crude oil briefly hit $36 before finishing up $1.85, or 5.5%, at $35.92 on the

New York Mercantile Exchange

.

"Generally, the market seems to find it much easier to rally at the moment than push lower," noted analysts at GNI.