Updated from 12:15 p.m. EDTOil prices fell Monday as traders trimmed long positions amid speculation that Israel's military offensive into Lebanon could end this week. A prediction from OPEC that higher oil prices will crimp demand also weighed on futures. Light, sweet crude was recently shed $1.73 to settle at $75.30 a barrel on Nymex, closing below $76 for the first time since Wednesday. Oil futures hit a record high for a third straight day on Friday, closing at $77.03. Oil prices have soared in recent days as Israel stepped up its military offensive against Lebanon and the guerilla group Hezbollah. The energy markets have been concerned that the conflict could widen to include other Middle Eastern countries and affect oil supplies from Iran, the world's fourth-largest producer. Iran and Syria back Hezbollah with weapons and money. "Iranian President Ahmadinejad has spoken of a "crushing response" should Israeli forces cross into Syria," Said David Watt, senior economist at BMO Nesbitt Burns in Toronto. "Given Ahmadinejad's past fire-brand statements about Israel, the situation could get much worse." Attacks on Lebanon could end within days, Israeli officers said, according to a Sky News report this morning. Although Israeli officials quickly denied the report, it was enough to inspire a strong round of profit-taking. Israel continued its bombardment of Lebanon for the sixth day, shrugging off U.N. offers of a multilateral security force. Over the weekend, a missile fired by Hezbollah struck the Israeli port city of Haifa, killing nine people and injuring dozens more. The Organization of the Petroleum Exporting Countries, which accounts for 40% of the world's crude, said oil demand growth would slow to 1.3 million barrels per day in 2007, down from 1.4 million this year. Refinery bottlenecks are also expected to slow growth. Demand for OPEC crude will also likely fall to 28.3 million barrels a day, down 700,000 barrels. But rising inventories from other oil-producing countries, like Russia, should help dampen prices next year. Oil prices have jumped 24% on production cuts in Nigeria, Africa's largest crude producer; Venezuela's push to renationalize its oil industry; and an ongoing tussle with Iran over its nuclear program. Until Israel began air strikes against Lebanon, most traders were focused on the impasse with Iran, which had until last week to respond to a Western incentives plan. Iran had until the Group of 8 Summit in Russia this past weekend to respond, but officials instead said they would respond in late August. Persuading Iran to drop nuclear development in exchange for trade incentives was intended to be one of the main points of discussion at the meeting before the Israeli attacks. "All of this instability from several sectors of the world either directly or indirectly favors the bulls camp in the energy arena, as instability fosters violence," said Guy Gleichmann, president of United Strategic Investors Group in Hollywood, Fl. "This certainly serves more as a threat to oil supply rather than a benefit." The drop in crude prices pulled down the rest of the energy sector, with heating oil dipping 5 cents to $2.01 a gallon. Gasoline declined 3 cents to $2.28 a gallon. Although most of the country is suffering hotter-than-average temperatures, natural gas slipped 56 cents to close at $5.78 per million British thermal units on a glut in supplies. There is 19% more natural gas in storage than last year. When temperatures rise, demand for natural gas typically rises because some utilities use it to generate electricity. Energy stocks were retreating Monday, with the Amex Oil Index and the Philadelphia Oil Service Index down 3% to 5%. Among oil drillers and refiners, Occidental Petroleum ( OXY), Marathon Oil ( MRO) and Hess ( HES) were the largest losers, down 4% to 6%. Schlumberger ( SLB), Rowan Companies ( RDC) and Tidewater ( TDW) led declines by more than 5% each. Natural gas companies were also getting hammered in trading Monday after investment bank Jeffries & Co. downgraded Grey Wolf ( GW), Patterson-UTI Energy ( PTEN) and Pioneer Drilling ( PDC) from buy to hold. A supply glut brought on by mild temperatures and increasing production is projected to shave earnings this year. Shares of Grey Wolf were last down 4.5% to $6.82; Patterson was shedding 5.8% to $23.44, and Pioneer was losing 8.4% to $13.67.