Oil fell almost 2 per cent yesterday as a truce took effect to end fighting between Israel and Hizbullah, easing concern about supply from a region that pumps a third of the world's oil.
Prices also slipped as BP said it would keep half its Prudhoe Bay oilfield, the largest in the US, pumping while it carries out pipeline repairs instead of shutting down the entire field.
"These developments, one on the geopolitical side and one on the actual supply side, both remove a bit of support for prices," said Mike Wittner of investment bank Calyon. US crude was down $1.35 (€1.06) a barrel at $73 after dropping to $72.60, the lowest since July 20th. London Brent lost $1.66 to trade at $73.97.
Prices fell 41 cents in New York last week, pressured by the alleged aircraft bomb plot that raised fears of a cut in air travel and supported by BP's move to shut Prudhoe Bay in Alaska.
Heavy fighting in southern Lebanon stopped yesterday after a UN-brokered truce came into effect, but the shooting of two Hizbullah guerrillas by Israeli soldiers underlined the fragility of the calm. Oil traders fear that a prolonged war could draw in producers such as Syria or Iran, both supporters of Hizbullah.
Brent has dropped from a record high of $78.65 hit last week and prices may have further to fall for now, dealers said.
"We're not talking about them collapsing," said Christopher Bellew of Bache Financial. "There's no reason why prices shouldn't come down to $71 or $72 or $70, talking about Brent."
Contributing to oil's drop, BP said at the weekend it had decided to keep pumping oil from the western half of Prudhoe Bay since pipeline corrosion in the west was less severe.
As of Saturday, it was pumping about 150,000 barrels per day (bpd) and expected to increase output to 200,000 bpd - half of full capacity - after it completes maintenance. "The sting in that event is obviously less than it was," said Tobin Gorey, commodity strategist at Commonwealth Bank of Australia.
The other half of Prudhoe Bay is expected to be offline for several months.
