Oil fell over $1 to below $72 Wednesday as weekly figures showed U.S. crude stocks fell in line with expectations, easing supply concerns after the partial shutdown of the country's largest oilfield last week.

U.S. light, sweet crude for September delivery settled $1.16 lower at $71.89 a barrel, losing ground for the third straight session and reaching the lowest level since July 20. ICE Brent crude settled down 72 cents $73.08 a barrel.

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U.S. crude supplies fell 1.6 million barrels last week, the Energy Information Administration said, in line with analysts' expectations.

"Some people were whispering ahead of the release of the data that the Prudhoe Bay shutdown decision by BP (BP) might have affected supply in a large way," said Phil Flynn, an analyst with Alaron Trading. "Those speculators are very disappointed right now."

Domestic gasoline stocks dropped 2.3 million barrels, while distillate supplies rose 800,000 barrels.

Prices have slumped from above $77 a barrel a week ago after BP said it would shut down only half of its 400,000 barrel per day Prudhoe Bay oilfield in Alaska for pipeline repairs, and the United Nations brokered a truce to end month-long fighting in the Middle East.

"Oil prices have come down now that the previously supportive factors of Israel-Hizbollah and Prudhoe Bay are out of the picture," said Naohiro Niimura, head of research and sales at Mizuho Corporate Bank.

Israeli forces began leaving parts of south Lebanon on Tuesday as the cease-fire held into a third day.

The United Nations hopes to start deployment of a new U.N. force in Lebanon with some 3,500 troops within two weeks, to monitor the fragile truce with Hezbollah guerrillas, provided France forms the backbone for the contingent.

STILL BULLISH

Some analysts remained bullish for the oil price in the longer term.

"The geopolitical situation compared to last year has gotten worse not better. I don't see any quick fix for the geopolitical situation," said Angus McPhail, analyst with Alliance Trust. "The spectre of $80 a barrel is still very real."

Attacks against foreign oil workers in Nigeria and Iran's stand-off with the West over its nuclear development are also lending support to prices, which are still up nearly 20 percent this year, aided by healthy investor buying.

High prices pushed oil production group OPEC on Wednesday to cut its 2006 demand forecast by 80,000 bpd to 1.3 million bpd.

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