Oil closed above $109 Tuesday, after the Federal Reserve cut the fed funds rate by three-quarters of a point, or 75 basis points, to 2.25 percent.
U.S. light, sweet crudefor April delivery gained $3.74 per barrel, or 3.5 percent, ending Nymex trade Tuesday at $109.42 Tuesday.
after sliding over 4 percent on Monday in the biggest one-day percentage drop in more than seven months.
London Brent also rose.
World financial bourses plunged on Monday after JPMorgan Chase & Co stepped in to rescue investment bank Bear Stearns for a bargain buy of $2 a share.
But on Tuesday, better-than-expected quarterly results from Wall Street firms Goldman Sachs Group and Lehman Brothers Holdings helped soothe investors' worries.
The Fed is widely expected to cut short-term rates, which now stand at 3 percent, to shield the U.S. economy from further damage stemming from the crisis in financial markets.
Concern of a U.S. recession has hit the dollar, supporting oil and other dollar-denominated commodities despite the risk of a slowdown in underlying demand. U.S. crude hit a record high of $111.80 on Monday.
Oil could come under further pressure, analysts said, as refined product prices have fallen sharply, making it less profitable for refiners to turn crude into fuel.
U.S. gasoline slid more than 6 percent on Monday, sending the profit margin, or crack, into negative territory.
"Given the current run for cash and the over-valuation of some commodities we will watch for continued profit taking," said Olivier Jakob, oil analyst at Petromatrix.
"A negative gasoline crack can only point to a continued overvaluation of crude oil."
Gasoline stockpiles in the U.S. are at a 15-year high and attention on Wednesday will focus on the latest snapshot of supplies.
Stocks of gasoline probably fell 300,000 barrels last week while crude inventories probably gained 2.4 million barrels, a preliminary Reuters poll showed on Monday.