By Barani Krishnan
NEW YORK (Reuters) - Oil prices rose for a second straight day on Tuesday as short-covering and technical support halted a slide to 11-year lows, but the market remained fundamentally weak from oversupply, traders and analysts said.
Government data on U.S. crude inventories and an expected Federal Reserve interest rate increase would dictate Wednesday's direction, they said.
Brent crude futures settled up more than 1 percent while U.S. crude's West Texas Intermediate (WTI) futures rose nearly 3 percent as oil bears once again failed to push prices to below a seven-year trough.
"Everyone was looking at 11-year lows, but I think people got a sense of 'bids' when they tried probing there," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland. "But I'd be surprised if they don't come back and take it down."
Brent settled up 53 cents at $38.45 a barrel, after reaching a session high at $39.41. On Monday, the global oil benchmark came within 14 cents of a December 2008 bottom of $36.20, unleashing a surge of buying support.
WTI settled up $1.04 at $37.35. It fell to $34.53 on Monday, the lowest since its financial crisis bottom of $32.40.
The market remained positive in post-settlement trade after a surprise build of 2.3 million barrels in U.S. crude stockpiles reported by industry group American Petroleum Institute for last week. [API/S]
A Reuters poll of analysts had forecast a 1.4 million-barrel draw instead for last week. Official inventory data is due on Wednesday from the U.S. Energy Information Administration (EIA) [EIA/S]
"People are buying on the dips," Jeffrey Grossman, crude dealer at New York's BRG Brokerage, said, describing Tuesday's action.
If Brent sustain its momentum on Wednesday, it could get nearer to the $40-a-barrel level it fell under last week, Grossman said.
Aside from the EIA data, the Fed announcement on Wednesday could also cause swings in oil prices, traders said. If the central bank decides to raise rates, it will be the first time it does so in nearly a decade. That could push the dollar up, making dollar-denominated oil less affordable to holders of euros. [FRX/]
Some analysts think oil will head lower regardless of the Fed decision.
"We remain reluctant to suggest that a long-term price bottom has been established anywhere across the complex," said Jim Ritterbusch, founder of Chicago-based oil consultancy Ritterbusch & Associates.
(Additional reporting by Karolin Schaps in London, Sabina Zawadzki in Copenhagen, Henning Gloystein in Singapore and Aaron Sheldrick in Tokyo; Editing by Steve Orlofsky and Tom Brown)