Oil Prices Drop On Mideast Truce News

(CBS/AP)  Oil prices dropped more than $1 a barrel Monday as a U.N.-brokered cease-fire in Lebanon took effect and as markets responded to news that BP would be able to maintain half of its production at a large oil field in Alaska.

Light sweet crude for September delivery fell $1.10 to $73.25 a barrel in electronic trading on the New York Mercantile Exchange. September Brent at London's ICE Futures exchange slipped $1.01 to trade at $74.62 a barrel.

"News of the U.N.-negotiated cease-fire in the Middle East and the announcement by BP that the western segment of the Prudhoe Bay field will resume production has buoyed the market," said Paul J. Harris, an analyst at Bank of Ireland Global Markets in Dublin.

Gasoline futures dropped 6 cents to $2.0040 a gallon and heating oil futures fell more than 2 cents to $2.0171 a gallon. Natural gas futures fell 27 cents to $6.999 per 1,000 cubic feet.

U.S. gas prices hit yet another record in the last three weeks, rising just over one cent to nearly $3.03 per gallon, according to a survey released Sunday.

But it could have been worse, analyst Trilby Lunderg told CBS Radio News, because there were "so many world events and U.S. events affecting petroleum. Some events offset others, especially last week, with oil jumping because of Alaska and falling because of London" — the terrorist arrests there.

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Gasoline analyst Trilby Lundberg tells CBS News' Dave Mock there's good news on gas prices.

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The market had worried that the Mideast conflict could affect oil supply if it spilled into other countries in the region, particularly Iran, OPEC's No. 2 oil producer and a backer of Hezbollah. Those fears raised crude prices to a record $78.40 a barrel on July 14, two days after the fighting started.

The other positive development to the market came late Friday when BP PLC announced it would keep one side of the Prudhoe Bay oil field open as it replaces corroded pipes, enabling it to funnel up to half its previous output. BP had previously said it would have to completely shut down the nation's largest oil field after discovering a leak nearly a week ago.

Prices had fluctuated widely last week, soaring after BP's initial announcement, then dropping back Thursday on fears that the foiled trans-Atlantic airplane attacks could dampen jet fuel demand and consumer confidence.

The market remains supported by the standoff between the United Nations and Iran over its nuclear program as well as supply disruptions in Nigeria because of civil unrest.

Three Filipino oil workers taken hostage in southern Nigeria were released early Monday, hours after witnesses said a new kidnapping occurred at a nightclub as gun battles broke out throughout the country's oil hub of Port Harcourt.

The Filipinos, who work for U.S. oil contractor Michael Baker Corp. of Moon Township, Pa., were handed over to the Filipino ambassador in Port Harcourt after being held captive for 10 days.

But news of the release was overshadowed by Sunday night's violence — gunshots rang out through at least three neighborhoods and witnesses said armed men kidnapped foreigners from a nightclub.

Oil traders are also watching weather patterns for potential hurricanes that could strike Gulf of Mexico coast refineries, as well as signals for where fuel demand is headed.