April New York Mercantile Exchange crude futures traded at $31.80 at 3:35 a.m. EST, up 54 cents from New York.

The contract rebounded on bargain hunting in the wake of the sharp plunge in New York, where prices shed a whopping $2.87 a barrel.

"There is some fresh buying from people who are taking advantage of the low prices. Basically the market has not turned yet. The trend is still going up," said a broker in Singapore.

Tuesday, April U.S. crude hit a nine-year peak of $34.20.

The New York sell-off was sparked by news price hawk Iran was likely to agree to an output hike by the Organization of Petroleum Exporting Countries (OPEC) on April 1, the day after a deal to hold back supplies expires.

OPEC sources told Reuters Wednesday that a statement released after talks in Riyadh between Iran and Saudi Arabia signaled that Tehran had no objections to releasing extra oil supplies.

"Now there is consensus on raising production after April 1," one of the sources said. "Iran does not object to a production increase. It will go along with other producers."

OPEC is to meet on March 27 to decide if it will extend the output curbs and the market was watching for signals on what decision OPEC would take.

Earlier this week, Iran, with Algeria and Libya, had said it was against a production rise after March. The three producers had said there was no need to raise output in the second quarter because they saw demand dropping sharply in that period.

But the latest Iranian news heightened expectations that OPEC would raise output.

"There will certainty be an increase even though a couple of states say they object. Now it is very clear that there is a consensus between OPEC and non-OPEC," the OPEC source said.

The output cuts, agreed between OPEC and some non-OPEC producers early last year, had drained inventories and tripled prices.

But some analysts believe any output hike by OPEC would be inadequate to replenish eroded stocks.

U.S. Energy Secretary Bill Richardson said Wednesday the Clinton administration was talking with some non-OPEC oil producers about what to do if OPEC's output hike was not enough.

He said although OPEC members Iran, Algeria and Libya had stated in the joint statement that they were against higher production, he believed OPEC would, indeed, ramp up output.

"My view is that despite the view of those three members of OPEC, that there will be an increase in production," Richardson said.

"What is very important...is that the level of increase be a sizeable amount and secondly, that it be done in a timely fashion," he said.

Non-OPEC producer Mexico, who, together with Venezuela and Saudi Arabia, had engineered the output cut deal, had hinted it might move independently of its OPEC allies once the deal expired.

"Our commitments end March 31," Jorge Chavez, Deputy Energy Secretary of Mexico said at an energy conference Wednesday.

Chavez also said the annual seasonal decline in global oil demand may be less this year than previously due to low gasoline inventories.

Venezuela's Oil Minister told the same conference he expected demand to slide 2.5 million barrels per day in the second quarter.