Oil: Mideast truce eases price pressure

Oil fell nearly 50 cents on Tuesday as a truce between between Israel and Hizbollah held for a second day.

US crude settled 48 cents lower at US$73.05 a barrel while in London, Brent gave up 50 cents to settle at US$73.80 a barrel.

Oil in New York has fallen from a record high of US$78.40 set on July 14 amid concern the Lebanon conflict may spread to other countries in Middle East, source of almost a third of the world's oil.

Thousands of refugees headed home to south Lebanon on Tuesday and Israeli forces began pulling back from some positions they had occupied.

In northern Israel, residents also returned after weeks away from their homes to escape thousands of rockets fired by Hizbollah across the border.

US petrol futures rose ahead of a US government report on Wednesday that was expected to show a drop of 1.8 million barrels in the fuel's inventories last week.

"The petrol, which has been a bit of a drag on the market, is strong," said Christopher Bellew, an oil broker at Bache Financial. "Maybe we'll see a bit of consolidation before the figures come out tomorrow."

US INVENTORIES

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."

Analysts polled by Reuters expect US crude inventories fell 1.6 million barrels last week last week as refineries stepped up processing rates and imports held steady from the previous week. EIA/S

Distillates stocks are expected to rise by 500,000 barrels. The poll comes ahead of the Energy Information Administration's release on Wednesday of stock data for the week to Aug. 11.

Some analysts cited impact on inventories from BP Plc's decision to begin shutting down the giant Prudhoe Bay oil field in Alaska due to pipeline corrosion.

BP's plan to keep half of Prudhoe Bay, the largest oil field in North America, pumping instead of shutting the entire field contributed to the drop in prices on Monday.

As of Saturday, it was pumping about 150,000 barrels per day (bpd) from Prudhoe Bay and expected to ramp up output to 200,000 bpd -- half of full capacity -- after finishing maintenance.

Oil is up about 20 per cent this year because of cuts to supply in Nigeria, Africa's top exporter, and concern that fellow Opec member Iran's dispute with the West over its nuclear work could affect oil flows.

Four oil worker hostages in Nigeria were released on Tuesday after a week in captivity, but at least another five were kidnapped late Sunday, part of a string of abductions this month.

- REUTERS