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Oil recovers in Asia trade after slumping to 3-month lows

Speculation the US could seek increased production from oil cartel OPEC and tap into its own Strategic Petroleum Reserves sent oil prices plummeting (AFP Photo/KAREN BLEIER)

Brent crude recovered in Asian trade Tuesday after plunging more than 4 percent to three-month lows on concerns over increased production and reports the US could tap into strategic reserves.

The black gold had closed decisively lower in New York on worries of excess supply, with reports that Saudi Arabia is looking to increase production.

Speculation that US President Donald Trump could seek increased production from oil cartel OPEC and tap into the Strategic Petroleum Reserves to push down gasoline prices, sent oil plummeting.

Both Brent crude and US benchmark West Texas Intermediate fell more than 4 percent Monday, with the former hitting three-month lows of below $72 a barrel.

In early Asia trade Tuesday, WTI was back up 3 cents to $68.09 and Brent crude was up 45 cents to $72.29.

After withdrawing from the Iran nuclear deal in May, the US said it would reinstate sanctions on the oil-producing nation, and warned other countries to stop purchasing Iranian exports including crude.

"The big news... was that US Treasury Secretary Steve Mnuchin said the US wants everyone to go to zero Iranian imports but that exemptions could be made for those who can't get there by the deadline," said AxiTrader chief market strategist Greg McKenna in a note to clients.

Following a massive global supply glut, prices had been propped up in recent months by a production cap agreement led by oil cartel OPEC and Russia, but this has since been scaled back.

Traders will now be looking towards data from industry group the American Petroleum Institute, due later Tuesday, for an indication of US crude stockpiles.

"The sweeping slew of bearish signals has wholly eroded market sentiment," said OANDA head of Asia-Pacific trading Stephen Innes.