Oil prices rose 1 per cent on Tuesday as traders betting on falling prices bought back contracts to lock in profits, after declines over the last three sessions due to escalating trade tensions between China and the US.

Brent prices plunged more than 8 per cent in the three sessions from their close on July 31, with US President Donald Trump vowing to impose new tariffs on Chinese imports, and China making further moves against US agricultural cargoes.

The US also responded to a decline in the Chinese yuan on Monday by branding the country a currency manipulator.

Brent fell more than 3 per cent on Monday as traders worried the ongoing trade dispute between the world's two biggest oil buyers would dent demand, helping to prompt Tuesday's short-covering.

International benchmark Brent crude futures had climbed 58 cents, or 1 per cent, to $60.39 a barrel by 0635 GMT on Tuesday after earlier dipping to their lowest since January 14 at $59.07.

West Texas Intermediate (WTI) crude futures rose 59 cents, or 1.1 per cent, to $55.28 per barrel. “This is more likely a correction from oversold doom and gloom positions,” said Stephen Innes, managing partner at VM Markets.

The US accused Beijing of manipulating its currency after China let the yuan drop to its lowest in more than a decade.

The People's Bank of China's firmer-than-expected yuan fixing on Tuesday, however, helped pull the currency away from the recent lows.

“There is large uncertainty surrounding demand ... There will be a lot of attention being paid to the commentary surrounding the trade war and its developments. There's talk of this potentially causing recession in parts of Asia and Europe,” said Harrison Fleming, research analyst at Frame Funds in Sydney.

Meanwhile, Iran has threatened to block all energy exports out of the Strait of Hormuz, through which a fifth of global oil traffic passes, if it is unable to sell oil as promised by a 2015 nuclear deal in exchange for curbing its uranium enrichment programme.

Oil prices will likely find some support later on Tuesday, with a preliminary Reuters poll showing US crude oil inventories were expected to fall for an eighth consecutive week.

The American Petroleum Institute (API) is set to release its weekly inventory data at 4:30 p.m. EDT (2030 GMT) on Tuesday, with official government numbers to follow on Wednesday.

“Though West Asia tensions and an extended draw-down in US inventories will grant support for oil prices, looming weakness in global fuel demand will impose headwinds and cap bullish gains for the near term,” said Benjamin Lu, analyst at Singapore-based brokerage Phillip Futures.

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