Oil reversed early losses, rising more than $1 from Tuesday's trough, as the dollar tumbled and Asian stock markets rebounded amid easing concern about the slowdown in the global economic recovery.
U.S. crude for August delivery climbed 44 cents to $72.58 a barrel by 0731 GMT (3:31 a.m. EDT), after earlier falling as much as $1.05 to $71.09 a barrel, its lowest since June 8 and down 1.5 percent from Friday's settlement.
The price moves are part of an extended session combining the trades of Monday and Tuesday on the New York Mercantile Exchange (NYMEX) because of the U.S. Independence Day holiday. A single settlement price will be issued for July 6.
ICE Brent crude for August gained 64 cents to $72.11 a barrel, posting a bigger increase than U.S. crude after prices fell on Monday.
There is no need to be so bearish. The economy is not so bad, said Keichi Sano, general manager of research at SCM Securities in Tokyo.
The dollar weakened more than 0.4 percent against a basket of currencies after rising earlier on Tuesday .DXY, while Asian stocks reversed course and rose, taking heart from gains in the Chinese market led by property and bank stocks.
The Australian dollar dribbled higher after the central bank sounded cautiously optimistic on the economic outlook.
Oil prices had earlier dropped on the back of Monday reports showing global services growth slowed in June and after weak manufacturing data for major economies published last week.
Traders were looking to Tuesday's release of U.S. non-manufacturing PMI data for June for further indications about the direction of the economy.
Top oil exporter Saudi Arabia cut the August official selling price (OSP) for its Arab Heavy crude oil grade to Asia, in line with expectations, although it unexpectedly raised the price for Arab Light crude.
A weather system located between Mexico's Yucatan peninsula and western Cuba 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 Monday.
The system's location and expected course are similar to those Hurricane Alex followed in its formation late in June, before moving into the Gulf of Mexico, forcing Mexican oil terminals to shut and U.S. producers to curb output.
Mid-week U.S. inventory reports are typically delayed a day in weeks when Monday is a holiday. This means that supply data from the American Petroleum Institute (API) is published on Wednesday and government statistics from the Energy Information Administration (EIA) are published on Thursday.
(Editing by Clarence Fernandez)