Oil rebounded from three-week lows on Monday, staying above $72 as the market assessed the implications of a slowing global economic recovery on energy use.

Rising stock markets in Asia prompted participants to cover short positions in a trading session where volumes were expected to be thin because of the U.S. Independence Day holiday.

Market participants are thinking that around $70 prices are quite cheap, said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.

U.S. crude for August climbed 38 cents to $72.52 a barrel by 11:50 p.m. ET. The New York Mercantile Exchange (NYMEX) will combine Monday's and Tuesday's trading sessions because of the holiday, with a single settlement price on July 6.

ICE Brent crude for August rose 41 cents to $72.06.

Prices fell every day last week for a cumulative decline of 8.5 percent, the steepest weekly drop since early May. They touched $71.62, the lowest intraday level since June 8, after a report showing a larger-than-expected drop in U.S. nonfarm payrolls for June of 125,000.

The downside has already been priced into the oil market and into stocks, Emori said. The important thing now is what kind of sentiment will emerge in the market and how investors could be holding positions against the negative market conditions.

Asian stocks edged up on Monday, with investors taking profits on defensive plays and buying back beaten down shares, though selling could resume as the U.S. and Chinese economies are slowing in tandem.

The dollar and U.S. equities fell on Friday after the weak U.S. jobs report rekindled doubts about the strength of recovery, yet failed to confirm widespread fears the economy was dipping back into recession.

A weather system located between Jamaica and Honduras in the Caribbean Sea had a 30 percent chance of developing over the next two days into a tropical cyclone, a category that includes tropical storms and hurricanes, the U.S. National Hurricane Center said late on Sunday.

The system's location and expected course are similar to those that Hurricane Alex followed during its formation stage in late June, before moving into the Gulf of Mexico, forcing Mexican oil terminals to shut down and U.S. producers to curb output.

Gulf of Mexico oil operations continued to restart on Friday after being shut as a precaution before Hurricane Alex hit Mexico last week.

Money managers cut net long crude oil positions on the New York Mercantile Exchange in the week through Tuesday, reducing bets that prices will rise, the Commodity Futures Trading Commission said on Friday.

Open interest positions remained bulked at August crude oil $70 and $65 put options on Friday, an indication that traders are betting prices will fall toward those levels.

(Editing by Michael Urquhart)