Oil up 1 percent after big losses; glut fears linger

By Barani Krishnan

NEW YORK (Reuters) - Oil prices rose about 1 percent on Thursday as shortcovering lifted crude futures hammered a day ago by unusually weak U.S. demand for motor fuel during the traditionally busy summer driving season.

Key crude benchmarks Brent and U.S. West Texas Intermediate (WTI) lost about 4 percent on Wednesday as a raft of bearish U.S. inventory data heightened concerns about a global glut.

In the latest session, oil rose as the dollar weakened on the pound's rally after the Bank of England's surprise decision not to cut interest rates following Britain's vote last month to leave the European Union.

Shortcovering, and the perception that the previous day's move lower was excessive, also supported crude futures.

"It's always the case a day after a big rally or sell-off for people to feel it was overdone," said Phil Flynn, an analyst with Chicago brokers Price Futures Group.

"But I think the argument is also on what's the fair price for oil? I think $44 is a good support, as $40 or below will again deter investments in the space."

Brent was up 69 cents, or 1.5 percent, at $46.95 a barrel by 9:56 a.m. EDT (1356 GMT), after rallying more than $1 to a session high of $47.72.

WTI rose 55 cents, or 1.2 percent, to $45.30, reaching $45.79 earlier.

Crude stocks in the United States fell less than expected last week, while distillate inventories rose the most since January and gasoline stocks unexpectedly increased, the Energy Information Administration (EIA) said on Wednesday.

The report portrayed a traditionally busy summer driving season beset with unusually low demand, when many had expected record driving trips amid lower oil prices. Weak gasoline is putting crude under pressure worldwide, with Middle East grades in particular hit by low Asian demand.

The market was also weighed by a bearish picture painted by the International Energy Agency (IEA), which said a persistent global crude glut was putting a lid on prices despite demand growth and declines in non-OPEC production.

Technical analysts say crude may be poised for a move lower after three months of strength.

"The market moved up to $50 quite fast, so we might go down and see whether there is anything below $40," said Avtar Sandu, senior commodities manager at Phillip Futures.

Tamas Varga of PVM Oil Associates in London said a first target for Brent could be its 100-day moving average at $44.84 a barrel, a level that could be reached in the next week.

(Additional reporting by Christopher Johnson in LONDON and Aaron Sheldrick in TOKYO; Editing by Adrian Croft and Jonathan Oatis)