Oil prices recovered sharply today after a big interest rate cut in Australia raised hopes that other countries would follow suit to bolster economic growth, a move that would support oil demand.

The market also spiked briefly after a report that a US warplane violated Iran’s territory and was forced to land in Iran. The Iranian news agency report said that five senior US military officials had been released when it was clear the plane had not entered intentionally.

The US said it was unaware of any American warplanes being forced to land there.

US crude was up $3.39 at $91.20 a barrel this afternoon, after settling down $6.07 at $87.81 on Monday after hitting an eight-month low of $87.56.

London Brent rose $2.36 to $86.04 a barrel today.

The Australian central bank's decision to cut interest rates by a percentage point — the largest single cut for almost 14 years — raised hopes that global central banks would act to try to stem the credit crisis.

“This is just a modest recovery after the sell-off of previous sessions. People are still very worried about the outlook for the international economy,” David Moore, a commodities analyst at Commonwealth Bank of Australia, said.

Oil prices have tumbled from a peak above $147 a barrel in July as high fuel prices and the fallout from the financial crisis slowed oil demand in the US, the top consumer, and other industrialised countries.

Oil demand in China, which helped fuel a six-year rally in commodities, will be key. Analysts are watching for signs that the crisis is hitting consumption there.

China will skip gasoline imports in October for a second successive month due to significant domestic stockpiles and a dip in demand, traders said.

The falling price of oil is concerning members of Opec, the producer group, according to Iraq’s oil minister, who yesterday said that $100 a barrel was a "fair" price for oil. Iran's Opec governor has said that the stronger dollar is cushioning producers from the worst of the fall.

There are fears that the price "hawks" among Opec producers, which include Iraq, will call for an early reduction in production to support prices before its next planned meeting in December.

Robert Laughlin, analyst at MF Global, said: "Panic selling by investors attempting to free up capital to finance losses in other markets may well have over exaggerated the sell off and we may well see a muted price recovery today."

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts