Oil dips as investors torn by tight supply worries and recession fears

© Reuters. FILE PHOTO: The chimneys of the Total Grandpuits oil refinery are seen just after sunset, southeast of Paris, France, March 1, 2021. REUTERS/Christian Hartmann

By Florence Tan

SINGAPORE (Reuters) - Oil prices slipped in early Asian trade on Friday, following a rebound in the previous session, as investors remained torn between worries over tight global supplies and fears a recession could dampen oil demand.

Brent crude futures fell 39 cents, or 0.4%, to $104.26 a barrel by 0013 GMT, dropping away from a near 4% rebound on Thursday. U.S. West Texas Intermediate crude slipped 35 cents, or 0.3%, to $102.38 a barrel, having settled 4.2% higher a day earlier.

Both contracts are set to decline for a second week. Trade this week was marked by a sharp sell-off on Tuesday, where WTI slid 8% and Brent tumbled 9%. Brent's $10.73 drop was the third biggest for the contract since it started trading in 1988.

"The sell-off in the commodity markets got a reprieve as traders shrugged off recession fears and turned their focus back to the undersupply issues," CMC Markets analyst Tina Teng said in a note.

"However, the economic uncertainties remain with the inverted benchmark bond yields pointing to an unavoidable recession, which may continue to weigh on commodity prices."

Central banks across the world are raising interest rates to tame inflation, spurring fears that rising borrowing costs could push countries into recession and reduce oil demand.

Data from U.S. Energy Information Administration (EIA) showed on Thursday that product supplied, the best proxy for U.S. consumer demand, rose to 20.5 million barrels per day in the most recent week. Overall gasoline and distillate demand over the past four weeks, however, was down a little more than 5% from the year-ago period. [EIA/S] [API/S]

U.S. crude inventories rose by 8.2 million barrels in the week to July 1, EIA data showed, driven by an increase in inventories and as refiners cut output.