Fears of a recession continue to weigh on oil prices, although a tightened supply mitigates losses

Oil prices dipped in early Asian trade on Monday, erasing the previous session's gains, as fears of a global recession weighed on the market despite the fact that supply remains tight due to lower OPEC output, unrest in Libya, and sanctions against Russia.

Brent crude futures declined 35 cents, or 0.3%, to $111.28 a barrel at 00:16 GMT on Saturday, following a Friday increase of 2.4%.

Futures for U.S. West Texas Intermediate (WTI) crude dropped 32 cents, or 0.3%, to $108.11 a barrel on Monday, after gaining 2.5% on Friday.

Fears of a recession have weighed on the market during the past two weeks, although supply concerns have prevented further price drops.

Tobin Gorey, a commodities analyst at Commonwealth Bank, observed, "Energy markets continue to be plagued by distinct supply risks, making shorting a nerve-racking exercise."

In June, the production of the 10 members of the Organization of the Petroleum Exporting Countries (OPEC) declined by 100,000 barrels per day (bpd) to 28.52 million barrels per day (bpd), a far cry from the 275,000 bpd increase they had expected.

Increases in Saudi Arabia and other major producers were offset by losses in Nigeria and Libya, and Libya faces additional supply disruptions as a result of rising political unrest.

Analysts at ANZ Research noted in a note, "This makes it even less likely that (OPEC) will be able to meet its newly increased output limits."

Last week, the National Oil Corp estimated that Libya's exports have reduced to between 365,000 and 409,000 bpd, a decrease of around 865,000 bpd compared to normal levels.

This week, a planned strike by Norwegian oil and gas workers may lower the nation's oil and condensate production by 130,000 barrels per day (bpd).

Traders will closely follow official oil prices for August from the world's largest oil supplier, Saudi Arabia, for signals of market tightness, with refiners anticipating another high increase close to the record established in May.

According to nine refinery sources evaluated by Reuters, the official selling price of Saudi Arabia's flagship Arab Light oil may rise by around $2.40 per barrel compared to the previous month.