"Oil's drop ... has put the 'glut' back into the headlines even though our balances show essentially no oversupply during the second half of the year," the Paris-based IEA said in its monthly report.

"Our crude oil balance indicates a hefty draw in the third quarter after a lengthy stretch of uninterrupted builds."

Brent futures for October delivery rose 45 cents to $44.50 a barrel, a 1% gain, by 9:40am ET (1:40pm GMT). US crude rose 38 cents to $42.09.

Demand has been a key area of focus for investors as a massive overhang in refined products threatens to dent demand for crude oil.

Global demand growth is expected to decline from 1.4 million barrels per day in 2016 to 1.2 million bpd in 2017, the IEA said, after a revision to the global economic outlook.

Still, the overall takeaway from the IEA's report has been more bullish than bearish.

"While higher utilisation rate of global refiners has pushed up commercial inventory, especially oil products, further refinery run cuts are expected in the next few months and product inventory draws will therefore follow," Bernstein analysts said in a note.

"This expected diminishing product inventory overhang will lead to a sustained tightening of oil market fundamentals and oil prices should be well above current levels."

Oil prices fell sharply on Wednesday after data from the US Energy Information Administration showed crude inventories rose 1.1 million barrels in the week ended 5 August Analysts polled by Reuters had expected a 1 million barrel crude draw.

World oil output has been well above consumption over the last two years, pushing up stocks across the globe at a time when sluggish economic growth has kept a lid on fuel demand.

Production by Opec has been boosted by producers such as Saudi Arabia, Iraq and Iran.

Saudi Arabia has said it pumped a record 10.67 million bpd of crude oil in July.

Opec expects demand for its crude in 2017 to average 33.01 million bpd, suggesting a supply surplus of 100,000 bpd if the producer group keeps output steady.

Many analysts say they see oil prices trading within a range for the next few weeks.

"As long as oil holds $40.00 we should be at the bottom," Phil Flynn, senior energy analyst at Price Futures Group said.

"The failure to follow through on bear market closes suggest we are near the low."