Oil rockets over 9 pct as deep shorts scramble for cover

By Barani Krishnan

NEW YORK (Reuters) - Oil rocketed more than 9 percent higher on Thursday in one of the biggest one-day rallies in years, as recovering equity markets and news of diminished crude supplies set off a short-covering surge by bearish traders.

Snapping back fiercely from a deep two-month slum that reached 6-1/2 year lows this week, oil gained as world stock markets rose on hopes that Chinese government measures to stimulate the economy would pay off, while the dollar strengthened as risk aversion eased.

The rally was aided by news of a force majeure on Nigerian oil exports declared by Shell and private data indicating more drawdowns in crude this week at Cushing, Oklahoma, traders said. A big upward revision in second quarter U.S. economic growth helped.

More than reversing the past week's losses, front month Brent crude rose $3.65 to $46.77 a barrel by 12:08 p.m. EDT (1608 GMT), hitting session high of $46.85. On Monday, the contract had struck a March 2009 low of $42.23.

It is on track for the biggest one-day gain for the contract since late January, when Brent ripped off six-year lows to rise by nearly $10 in three days, the start of a recovery that stabilized prices through the second quarter.

U.S. crude's front-month surged by almost 10 percent, rising $3.65 to $42.25, closing in on its biggest one-day percent gain since June 2012. It had hit a February 2009 low of $37.75 on Monday.

Brent, the global benchmark for oil, lost about $5 a barrel, or 14 percent, over the past six sessions on worsening fundamentals from a supply glut as well as weak technicals.

Short sellers had piled into the market, amassing one of the biggest ever positions in U.S. crude, according to regulatory data. But some scrambled to unwind those on Thursday.

"It's the squeeze on short-sellers that we've been anticipating after the oil markets saw panic selling and capitulation trade in the $30 levels," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland.

"Couple this with strong continued demand for gasoline and solid GDP numbers out of the U.S., and China's actions to reinflate their economy with a very shorted market, the near-term bounce we have been calling for appears to be working out."

U.S. nationwide crude oil stocks unexpectedly fell by more than 5 million barrels last week, and data from industry group Genscape showed that inventories in Cushing, Oklahoma, declined by another nearly 400,000 barrels since last Friday.

(Additional reporting by Lisa Barrington in London, Henning Gloystein in Singapore and Meeyoung Cho in Seoul; Editing by Christopher Johnson, Dale Hudson, W Simon and Marguerita Choy)