Oil slipped to about $73 a barrel yesterday as a truce between Israel and Hizbollah held for a second day, easing concern over threats to oil supply in the Middle East.

Thousands of refugees headed home to south Lebanon and Israeli forces began pulling back from some positions they had occupied. Prices also fell as BP kept oil flowing from North America?s largest oilfield during pipeline repairs.

?We?ve seen a fair amount of fund selling over the past few days,? said analyst Deborah White of Société Générale. ?It still seems to be the hopes that the truce will work in the Middle East and the news we?ve got from BP.?

US crude eased 51 cents to $73.02 a barrel by 1114 GMT, adding to Monday?s 82-cent drop. London Brent lost 65 cents to $73.65.

Oil in New York has fallen from a record high of $78.40, hit on July 14, on concern the Lebanon conflict may widen in the Middle East, source of almost a third of the world?s oil. Overnight, Israeli troops left the southern Christian town of Marjayoun which they had occupied on Thursday, Lebanese security sources said. Witnesses said later they were also pulling out of the nearby town of Qlaiah.

BP said it would keep half of the Prudhoe Bay field in Alaska pumping while it carries out repairs, instead of shutting the entire field.

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.

Supply outages from Alaska to Nigeria and rising world demand suggest oil may not drop much further, analysts said.

US inventories

?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.?

Oil is up about 20 percent 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.

Two oil worker hostages in Nigeria were released on Monday after a week in captivity, but another four were kidnapped late Sunday, part of a string of abductions.

Traders will be looking to US inventory data due today for the next snapshot of supplies in the world?s top consumer. Analysts expect a 1.3 million-barrel fall in crude stocks last week.

A Reuters poll also showed gasoline stocks were expected to slide 1.9 million barrels as demand remained strong despite record pump prices.

Alex LAWLER