Oil rose more than $2 a barrel yesterday 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 spiked briefly after a report that a US warplane violated Iran?s territory and was forced to land in Iran. An Iranian state television station later said the plane was Hungarian, with no US military officials aboard. The US said it was unaware of any US warplanes being forced to land in Iran.

US crude was up $2.64 at $90.45 a barrel at 10:31 a.m. EDT. It had settled down $6.07 at $87.81 on Monday after hitting an eight-month low of $87.56. London Brent rose $2.10 to $85.78 a barrel. Oil?s fall on Monday was part of an international market rout, triggered by the credit crisis. Oil traders were skeptical the rally would last. «It?s a bit of a recovery, but hardly anything to speak of after very steep falls,» said Christopher Bellew, a broker at Bache Commodities. «It would be foolish to think the dawn has come in terms of oil prices going back up again.»

OPEC?s concern

Oil has plummeted from a record high of $147.27 a barrel, hit in July, as high fuel prices and the growing financial crisis slow oil demand in top consumer the United States and other industrialized nations.

OPEC may need to cut oil supply further to prop up oil prices, the top official for OPEC member Libya told Reuters yesterday, a day after crude prices fell to an eight-month low. Libya joins Iran and Iraq, fellow members of the Organization of the Petroleum Exporting Countries, in expressing concern this week about the impact of the worsening financial crisis on the oil market. «If this volatility continues, OPEC will have to do something,» Shokri Ghanem, chairman of Libya?s National Oil Corporation, told Reuters by telephone.

«For oil-producing countries, not only are prices going down, but also their money in the banks, their investments are threatened by this financial crisis.» Oil hit an eight-month low of $87.56 on Monday as the financial crisis increased traders? concern that demand in the United States and other nations will fall, despite a deal by OPEC in September to trim its oil output. OPEC decided at a meeting in Vienna on September 9-10 to comply strictly with its formal output target, a move officials said would result in the group trimming supply of crude oil by about 500,000 barrels per day.

The deal followed a sharp slide in prices from a record high of $147.27 reached in July. «We cannot allow the prices to deteriorate....we have to do something,» Ghanem said, when asked if OPEC might need to cut production for a second time this year. Despite the expressions of concern from within OPEC, so far there has been no public comment from Saudi Arabia, the group?s largest producer and most influential member, on the likelihood of a further output cut.

The Libyan official said OPEC members are watching the market closely and the group could decide to meet to review output before its next scheduled conference on December 17 in Algeria. «We may sit down together before December. We are watching the market. It is a dangerous situation.» «If OPEC cannot do it together, individual countries can do it by themselves by cutting their production.»

Watching demand from China

The spread of the e-credit crisis. has intensified gloom about the global economic outlook and weakening prospects for oil demand. The US Energy Information Administration revised down its forecast for world oil demand growth in 2009 versus 2008. The agency cut its forecast by 140,000 barrels per day from its previous estimate published last month.

Analysts are watching oil demand from China ? which helped drive oil?s rally from $20 in early 2002 ? for signs the crisis is hitting consumption in the world?s second-largest consumer. News that Mexico?s state-owned oil company Pemex was evacuating four offshore oil platforms due to tropical storm Marco could become supportive for prices. Marco is expected to approach hurricane strength before reaching Mexico?s Central Gulf Coast later on Tuesday.

Alex LAWLER

Jane MERRIMAN