Oil prices climbed 3% on Tuesday, recovering from steep losses the previous session, after China's central bank lowered a short-term lending rate for the first time in 10 months. The rate cut, aimed at adding momentum to a hesitant post-pandemic recovery in the world's second-largest economy and biggest crude importer, is likely increase oil demand.

Brent crude futures climbed $2.18, or 3%, to $74.02 a barrel by 11:34 a.m. EDT (1534 GMT). U.S. West Texas Intermediate (WTI) crude was up $2.04, or 3%, at $69.16 a barrel. Prices on Monday fell by about 4%, in part because of concerns about the Chinese economy after disappointing economic data last week. "The market is showing a rebound from yesterday," Phil Flynn, an analyst at Price Futures group, said. "It was overdone with doom and gloom on Monday." Equities, which often trade in tandem with oil, also rose on Tuesday.

Meanwhile, Brent's six-month backwardation, a market structure whereby shorter-dated futures trade above longer-dated ones, has fallen to its lowest since March at around $1.30, indicating faltering confidence that demand will exceed supply over the year. "For market participants to start building up long positions again, they likely need to see larger inventory declines," said UBS strategist Giovanni Staunovo, adding he expected this to happen within weeks. A rise in global supplies is weighing on the market, along with concerns about demand growth, ahead of a U.S. Fed monetary policy meeting concluding on Wednesday. Most market participants expect the Fed to leave interest rates unchanged, especially after data showed U.S. consumer prices barely rose in May.

The Fed's rate hikes have strengthened the dollar , making dollar-denominated commodities more expensive for holders of other currencies and weighing on oil prices, so a rate hike pause could be bullish. The European Central Bank is expected to hike interest rates on Thursday. Worries about demand have unraveled the temporary boost in oil prices from Saudi Arabia's pledge announced early this month to cut more production in July.

The Organization of Petroleum Exporting Countries (OPEC) kept its forecast for 2023 global oil demand growth steady for a fourth month on Tuesday, slightly increasing expectations of Chinese demand growth. Another monthly report by the International Energy Agency (IEA) due on Wednesday will provide further trading cues. Investors await industry data on U.S. oil inventories on Tuesday, followed by government data on Wednesday. Five analysts polled by Reuters estimated on average that crude inventories fell by about 1.3 million barrels in the week to June 9.