U.S. oil prices steadied on Thursday after spiking in early trade on supply worries amid fighting in Libya and growing unrest in the Middle East.

Trading was volatile and volume thin as investors awaited the next turn of events in the Middle East and as they also weighed developments surrounding Japan's nuclear crisis.

U.S. May crude oil futures settled down 15 cents at $105.60 a barrel. The prices swung as low as $104.76 after hitting a session high of $106.69, which was near the March 7 peak of $106.95, the highest since September 2008.

By 3:40 p.m. EDT (7:40 p.m. GMT), U.S. trading volume was at 499,231 lots, 41 percent below the 30-day average, with about 1-1/2 hours left of the day's session.

The propensity to take profits is pretty strong here after moving up about $10 since March 16 and (U.S. crude) ran into some resistance ahead of the year's high at $106.95, said Andrew Lebow, broker at MF Global in New York.

In London, May Brent retraced higher and settled up 17 cents at $115.72, bouncing off the session low $114.50. It posted the day's high at $115.92.

Brent's trading volume stood at 343,863 lots, 34 percent below the 30-day average.

The choppy trading scenario caused Brent's premium against its counterpart U.S. crude to retrace upward to above $10, after dipping early to below $9.

Analysts polled by Reuters forecast oil prices will hold over $100 a barrel through 2013, due to tensions in the Middle East, with average forecasts for 2011 raised by $12 to over $104 a barrel.

Earlier, news that a French fighter jet, part of a U.N. coalition enforcing a no-fly zone over Libya, had destroyed a Libyan war plane pulled back Brent crude from negative territory.

Before that Brent crude fell on concerns about euro zone debt problems following the resignation of Portugal's Prime Minister Jose Socrates on Wednesday.

U.S. crude oil had been pressured earlier by economic data showing new orders for long-lasting manufactured goods fell in February, but was supported by improved labor market data and persistent worries about unrest in the Middle East and fighting in Libya.

LIBYA CONFLICT, MIDEAST UNREST

A French warplane destroyed a Libyan military aircraft with an air-to-ground missile as it was landing at Misrata air base in western Libya on Thursday, France's armed forces said.

Allied warplanes hit military targets deep inside Libya but failed to prevent tanks re-entering the western town of Misrata, underlining the difficulty of the U.N.-based mission to protect Libyans from government forces.

In Yemen, soldiers loyal to President Ali Abdullah Saleh clashed with army units backing opposition groups demanding he step down.

In Syria, at least 37 people were killed in the city of Deraa, as protests grew, prompting the government to promise it would to protesters' demands.

In Bahrain, opposition activists said they planned to hold a day of demonstrations throughout the tiny island country on Friday in defiance of a ban on all public gatherings.

(Additional reporting by Robert Gibbons in New York; Claire Milhench in London; and Alejandro Barbajosa in Singapore; Editing by David Gregorio)

Portugal Japan Libya