OIL prices edged lower early on Tuesday, coming off gains made the previous day as concerns about the global economic backdrop outweighed supply worries raised when Saudi Arabia announced its biggest output cut in years.

Brent crude futures slipped 51 cents to $76.20 a barrel by 0506 GMT. The U.S. West Texas Intermediate crude fell 54 cents to $71.61 a barrel.

Brent had gained as much as $2.60 on Monday and U.S. crude as much as $3.30 after Saudi Arabia, the world's top exporter, said at the weekend its output would drop by 1 million barrels per day (bpd) to 9 million bpd in July. The benchmarks pulled back, though, to more modest gains by the end of the day.

"Oil prices are still in a bear market, and we can see that some advanced economies have already started to fall into recession such as Germany," CMC Markets analyst Leon Li said.

Market participants are waiting to see if the U.S. Federal Reserve will hike or hold interest rates in June, and what China's May trade data on Wednesday will indicate about demand in the world's second-largest oil consumer.

Higher interest rates from the Fed could curb energy demand, although several analysts say consumption will be strong. Markets now peg the chances of the Fed pausing its interest rate hikes this month at 77%, according to the CME FedWatch Tool.

Demand is still expected to be a positive market driver after the release of recent economic data, with the U.S. not in a recession and Europe doing fine, said Rystad Energy research director Claudio Galimberti.

And while China is dealing with a new COVID-19 wave that is limiting traffic temporarily, it will bounce back soon, he said.

Also, "the U.S. economy is about to show a very robust summer travel season that should mean gasoline and jet fuel demand is going to be very strong", said OANDA senior market analyst Edward Moya in a note.

 - Reuters