Oil steadied above $73 a barrel today, rebounding from earlier losses, ahead of data expected to show a drop in fuel inventories in top oil consumer the United States.
Prices fell yesterday and earlier today as the ceasefire in Lebanon eased concern about threats to Middle East supply. But supply outages from Alaska to Nigeria suggest oil may not drop much further, analysts said.
"It is a fundamentally strong picture," said Kevin Norrish, oil analyst at Barclays Capital. "We don't think that there is much downside from here."
US crude rose 22 cents to $73.75 a barrel by 1443 GMT, reversing an earlier drop. London Brent was up 13 cents to $74.43.
Oil fell as a truce to end fighting between Israel and Hizbullah entered its second day, easing concern about supply from a region that pumps a third of the world's oil.
Planning got under way for a beefed up United Nations peacekeeping force, after ground clashes and air strikes ceased yesterday. Traders feared a prolonged war could draw in regional oil producers Syria or Iran, both supporters of Hizbullah.
Brent has dropped from a record high of $78.65 hit last week, also pressured by the alleged trans-Atlantic aircraft bomb plot that raised fears of a cut in air travel.
Prices had slipped further after BP said it would keep half its Prudhoe Bay oilfield pumping in Alaska - the largest in North America - while it carries out pipeline repairs, instead of shutting down the entire field.
Oil is up 20 per cent this year on real and feared supply disruptions. Opec member Iran's row with the West over its nuclear work has kept dealers on edge over a wider outage from the Middle East.
Nigerian militants have cut about a quarter of supplies from the world's eighth-largest exporter. Two oil worker hostages in Nigeria were released yesterday after a week in captivity, but another four were kidnapped late Sunday.