LONDON (AFP) -- Oil prices retreated further on Monday as prospects rose for a cease-fire between Israel and Hezbollah resistance fighters in Lebanon, dealers said.

Concerns that the violence could have spread to major crude-producing nations in the Middle East saw oil prices soar to all-time highs above 78 dollars earlier this month.

On Monday, New York's main contract, light sweet crude for delivery in September, lost 83 cents to 73.60 dollars per barrel in electronic deals before the official opening of the US market.

In London, Brent North Sea crude for September delivery lost 1.02 dollars to 72.91 dollars per barrel in electronic trading.

U.S. Secretary of State Condoleezza Rice arrived in Beirut on Monday, calling for an urgent cease-fire in the Lebanon conflict even as Israeli troops were locked in combat with Hezbollah.

"We believe that a cease-fire is urgent," Rice told reporters en route to the region, where she is also due to hold talks with Israeli Prime Minister Ehud Olmert and then Palestinian leader Mahmud Abbas.

Israeli leaders, while warning the offensive could last for some time, have suggested they would accept some form of international peacekeeping force in southern Lebanon.

"An international peace keeping force should be seen as a step in the right direction, and if it were to happen, it would probably pull prices down again," said Investec analyst Bruce Evers. "The Americans are refusing to condemn the Israeli actions, but there is a growing chorus of criticism from the international community, and the market is hoping that these criticisms will actually lead to a cease-fire."

However, he warned that the "the big concern is that Syria and Iran get pulled into the whole thing".

Washington has come under increasing pressure for bold action amid criticism it is stalling to allow Israel time to attempt to wipe out Hezbollah, which set off the conflict after seizing two Israeli soldiers on July 12.

London Brent struck a historic peak 78.18 dollars per barrel on July 17, while light sweet crude hit a record pinnacle of 78.40 dollars in New York on July 14.

Since striking the highs, crude futures have fallen in London and New York by around six percent. However, current crude prices remain some 20 percent higher than at the start of 2006.

Meanwhile, the future outlook for oil futures "depends on the situation in the Middle East and the hurricane season", according to Evers.

Last year energy facilities on the rig-heavy U.S. Gulf Coast were ravaged by hurricanes, pushing oil prices to then-record high points.