Updated from 12:22 p.m. EDT

Oil futures retreated Tuesday after the U.S. Energy Secretary said BP may keep half of its Prudhoe Bay oil field in Alaska working while it completes repairs.

BP may continue pumping in the western half of the field while it fixes a corroded pipeline and small leak, Secretary Samuel Bodman said at a press conference Tuesday. While he cited a conversation with BP America President Bob Malone, the oil giant has yet to say anything publicly.

"A complete shutdown of the Prudhoe Bay system may not be necessary," said Bodman, according to the Associated Press.

Bodman's comments followed the release of his agency's short-term energy outlook this morning, which called for the oil field to return to production by February. Alaskan oil output is expected to drop by 300,000 barrels in August and 400,000 barrels in September and October. In January, production is expected to decline by 100,000 barrels.

On Monday, BP ( BP - Get Report) said that it will shut down the field, which accounts for 8% of the country's oil production. All told, the closure, expected to take up to five days to complete, will take around 400,000 barrels of crude per day off the oil markets.

The oil giant may take "weeks or months," to repair the problems, BP's Alaska president, Steve Marshall, said at a press conference, according to Bloomberg.

Light, sweet crude for September delivery shed 67 cents to $76.31 a barrel. Heating oil dipped 2 cents to $2.11 a gallon, and gasoline lost 2 cents to $2.22 a gallon.

Natural gas rose 25 cents to $7.15 per million British thermal units.

However, the country could make up the difference either by increased imports or a drawdown of domestic supplies, the agency said in its monthly energy forecast. Saudi Arabia has offered to open its taps, though much of it is high in sulfur and costly to refine, and the U.S. Energy Department can use emergency reserves.

"My sense is we're in pretty reasonable shape," said Bodman, the Associated Press reported.

Crude could be released from the country's Strategic Petroleum Reserve, which holds about 688 million barrels, if supplies are requested, but thus far, refiners Valero Energy ( VLO - Get Report) and Tesoro ( TSO) have said they have enough.

Traders have been worried refiners on the West Coast, which process 2.7 million barrels of crude per day, would be hit hard by the shutdown because some of their supplies come from Alaska. But most of the affected supplies feed two of BP's large refineries in California and Washington.

Domestic oil supplies should be enough to cover the BP shutdown because inventories are currently 4% over last year. Though analysts in a Bloomberg poll estimate that crude inventories declined by 1 million barrels last week, it still won't be enough to crimp stockpiles. In the summer, crude supplies typically decline as millions of Americans take to the roads on vacation.

Gasoline inventories were also expected to fall by 1 million barrels thanks to higher demand. However, there is currently 1% more gasoline in storage than last year. Refining capacity was expected to climb by 0.20% from 90.8%.

Distillates will likely jump by 775,000 barrels as demand slumps and production remains high.

On Monday, oil futures soared more than $2 to close at $76.98 a barrel on Nymex. The closing price was the highest since July 14, when futures settled at $78.40 a barrel on worries Iran would be dragged into the fighting between Israel and the militant group Hezbollah. Oil prices have climbed more than 21% this year on the conflict in the Middle East, rebel attacks on Nigerian oil installations, and Iran's saber-rattling.

Concerns a slowing economy could spell the end to high crude demand and lofty oil prices have also buoyed oil futures. The Federal Reserve's announcement Tuesday to keep interest rates the same at 5.25% didn't move energy futures. The pause ends 17 consecutive rate hikes over the past two years.

High oil prices are expected to cut the growth in global demand for petroleum this year, according to the Energy Department's short-term forecast. Oil demand growth is forecast at 1.3 million barrels per day in 2006, down 300,000 barrels from the agency's previous forecast last month.

Meanwhile, in market action, BP was recently down 21 cents, or 0.3%, at $70.24. On Monday, shares lost $2.09 to close at $70.45. While BP has a lower stake in the Prudhoe Bay oil field than ExxonMobil ( XOM - Get Report) or ConocoPhillips ( COP - Get Report), which each have a 36% share, BP's stock has borne the brunt of the shutdown because it controls operations there. Exxon and Conoco shares were recently rising less than 1%.