Oil prices held steady just below record highs on Wednesday, taking some relief from efforts to keep nearly half of Alaska's Prudhoe Bay oilfield's output flowing.
London Brent crude, which hit a new high of $78.65 a barrel before succumbing to profit-taking on Tuesday, was trading up 10 cents at $77.65 a barrel. US light, sweet crude was down 1 cent at $76.30, about $2 shy of its peak in July.
After soaring 3 per cent on Monday following news that BP was shutting down Prudhoe Bay due to a corroded pipeline, prices eased on Tuesday amid hope that some output from the biggest oilfield in the US could be maintained.
US Energy Secretary Sam Bodman said BP may be able to keep up to half of Prudhoe Bay production online during work, helping offset fears that the loss of 8 per cent of US production could last for months, adding to outages in Nigeria and Iraq.
BP, which had shut half of the field's production by Tuesday, said it was talking with regulators about ways to keep pumping from the western side of the field, which produces 185,000 barrels per day, while it replaces pipelines.
The US government said Saudi Arabia and Mexico had pledged to help meet any supply shortfalls, but also warned that full production from Prudhoe Bay might not resume until January.
Given the regulatory scrutiny BP is facing -- it is being investigated for an Alaskan spill in March -- and the logistical challenges in buying new pipelines and installing them in the harsh north, some analysts still feared a prolonged outage.
"The politics around that decision (resuming western production) will be interesting. We think the plan gets nixed and 400,000 bpd are out through Q1," Jan Stuart, energy economist at UBS, said in a report.
Oil prices have soared 25 per cent to new highs this year on a combination of feared outages stemming from Iran's determination to pursue a nuclear programme and the ongoing war between Israel and Hizbollah, plus the very real loss of some 700,000 bpd of Nigerian production and Iraq's erratic northern exports.
Israel was expected to decide on Wednesday whether to send troops deeper into Lebanon, as a possible UN vote on a resolution that might end the month-long war may be delayed to Thursday as Beirut pushes for a withdrawal of Israeli troops.
Relatively healthy global crude oil inventories have provided a cushion for disruptions, but there are signs that missing supplies -- coupled with a cut-back in Saudi exports since the first quarter -- may be gradually eroding that surplus.
US commercial stocks were expected to have fallen by 800,000 barrels last week, with petrol stocks off 1.1 million barrels as demand appeared unperturbed by near-record-high pump prices, according to a Reuters poll.
Government inventory data was due out later on Wednesday.
Another anxiety for the market is the US hurricane season, which continues until around November. Hurricanes last year temporarily knocked out a quarter of US crude and fuel production and sent prices to what were then record highs.