U.S. crude for September delivery fell 32 cents to $72.91 a barrel by 0814 GMT, dipping as low as $72.88 after a $1.30 fall on Friday, partly due to data showing that U.S. economic growth had slowed to 2.5 percent in the second quarter.

London ICE Brent crude lost 28 cents to $73.11.

Dealers took profits on Friday amid apparently brighter prospects for a truce in the Middle East that would end a 20-day war traders fear might draw in neighboring oil producers like Syria or Iran, both supporters of the Hizbollah guerrillas.

Sunday's Israeli air strike on the southern village of Qana that killed at least 54 Lebanese civilians, including 37 children, has intensified world pressure for an immediate halt to the fighting and fueled more anger across the Arab world.

On Monday U.S. Secretary of State Condoleezza Rice, who aborted a planned trip to Beirut after the bombing, said a ceasefire could be forged this week.

"This morning, as I head back to Washington, I take with me an emerging consensus on what is necessary for both an urgent ceasefire and lasting settlement. I am convinced we can achieve both this week," she told reporters in Jerusalem.

World leaders deplored the attack on Lebanon.

Israel has suspended its aerial bombardment of southern Lebanon for 48 hours to allow for an investigation into the attack and will co-ordinate with the United Nations to allow a 24-hour window for residents to leave the area if they wish.