Oil jumps 3 percent as U.S. data lifts economic outlook

An EnCana pump jack pumps oil out of the ground near Rockyford, Alberta, June 30, 2009. EnCana is one of Canada's largest energy producers.

NEW YORK (Reuters) - Oil prices jumped 3 percent to top $71 a barrel on Tuesday after data showing gains in U.S. retail sales and producer prices outweighed concerns about growing U.S. distillate inventories.

U.S. retail sales rose at the fastest pace in 3-1/2 years in August and New York State manufacturing activity hit a near two-year high, data showed, more signs that economic activity was improving.

A separate report showed prices received by U.S. producers rose faster than expected last month, giving a lift to U.S. stock markets.

U.S. crude for October delivery settled up $2.07 at $70.93 a barrel. Data from the American Petroleum Institute (API) showing builds in U.S. crude and products inventories pushed U.S. oil prices down to $70.41 in post-settlement activity.

October Brent -- which was pressured ahead of the contract's expiration on Tuesday -- fell 9 cents to settle at $67.35 a barrel.

Traders have been looking to equities markets and wider economic data for signs of a turnaround that could bolster flagging oil demand.

Federal Reserve Chairman Ben Bernanke said the worst U.S. recession since the Great Depression was probably over, but the recovery would be slow and it would take time to create new jobs.

"Once the S&P (500 index) firmed and when Bernanke said recession was near an end it seemed to send crude back up above $70," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

The Organization of the Petroleum Exporting Countries said signs of a rebound in the world economy appeared to be gathering but that the recovery would be gradual.

Further support came after environmental protests forced production to be suspended at a 155,000 barrel per day oil sands mine in Canada, in which Royal Dutch Shell Plc (RDSa.L) has a 60 percent stake.

U.S. INVENTORIES

API data showed U.S. crude stockpiles rose by 631,000 barrels in the week to September 11, countering analysts expectations for a draw.

Inventories of distillates, including heating oil and diesel, jumped by 5.2 million barrels, well over forecasts for a 1.3-million-barrel build. Gasoline inventories rose by 1.3 million barrels, more than double analyst forecasts. <API/S>

Traders are now awaiting the release of Energy Information Administration's inventory report, due out on Wednesday.

(Reporting by Matthew Robinson, Robert Gibbons and Gene Ramos in New York, Catherine Bosley and Jane Grieve in London and Sambit Mohanty in Singapore; Editing by Marguerita Choy)