Flames emerge from flare stacks at Nahr Bin Umar oil field, north of Basra
Flames emerge from flare stacks at Nahr Bin Umar oil field, north of Basra, Iraq March 9, 2020. Reuters

Oil prices eased in early trading on Thursday after rising for the previous two sessions as investors remained cautious due to lingering concerns over a U.S. recession and weaker oil demand.

Brent crude fell 19 cents, or 0.2%, at $87.14 a barrel by 0116 GMT, while U.S. West Texas Intermediate slid 16 cents, or 0.2%, to $83.10.

Both benchmarks rose 2% on Wednesday to their highest in more than a month as cooling U.S. inflation data spurred hopes that the Federal Reserve is likely to stop hiking interest rates.

However, the previous tightening, which has lifted interest rates to their highest since 2007, is increasing concerns that the Fed's focus on halting inflation may end up throttling economic growth and future oil demand in the world's biggest oil user.

"The rally has ended due to worries that a possible U.S. recession will weaken crude oil demand," said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.

"WTI rose above $83 a barrel, near its highest technical cap since last December, which also prompted a sense of caution among investors," he added.

The U.S. Consumer Price Index (CPI) climbed 0.1% last month, below economists' expectations for a 0.2% gain, and down from a 0.4% increase in February, raising expectations that the Fed is likely to stop hiking rates after a possible increase in May.

However, the Fed's staff assessing the potential fallout of banking stress projected a "mild recession" later this year.

Markets on Wednesday shrugged off a small build in U.S. crude oil stocks, attributing it in part to a congressionally mandated release of oil from the U.S. emergency reserve and lower exports at the start of the month.

Crude inventories rose by 597,000 barrels in the last week, the Energy Information Administration said on Wednesday, compared with analysts' expectations in a Reuters poll for a 600,000-barrel drop. Gasoline and distillate stocks drew less-than-expected.

The Biden administration plans to refill the U.S. Strategic Petroleum Reserve soon, and hopes to refill it at lower oil prices if it's advantageous to taxpayers during the rest of the year, U.S. Energy Secretary Jennifer Granholm said on Wednesday.

Still, the oil market was jolted higher two weeks ago after the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia agreed to curtail output.

As a result, the global oil market could see tightness in the second half of 2023, which would push prices higher, Fatih Birol, executive director of the International Energy Agency, said on Wednesday.

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County
The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. Reuters