UPDATE 7-Oil jumps nearly 4 pct on sharp US inventory draw

                                
 * U.S. oil demand decline slows, economy improving - API
                                
 * U.S. crude stocks down 8.4 mln barrels last week - EIA
                                
 * Chinese equity sell-off rattles global markets
                                
(Updates throughout, changes dateline from previous LONDON)
                                
 NEW YORK, Aug 19 (Reuters) - Oil surged nearly 4 percent
on Wednesday after U.S. government data showed a steep drop in
crude imports and inventories in top consumer the United
States.
                                
 U.S. crude stockpiles plunged by 8.4 million barrels in the
week to Aug. 14 -- against analysts' forecasts for a build --
as imports dropped to the lowest level since September 2008 and
refiners hiked runs, according to data released by the U.S.
Energy Information Administration. [EIA/S]
                                
 Gasoline inventories also showed a bigger-than-expected
drop, while distillate stockpiles showed a surprise drop.
                                
  "The data is being viewed as bullish as all stock
categories fell more than expected," said Jim Ritterbusch,
president of Ritterbusch & Associates in Galena, Illinois.
                                
 The data helped push U.S. crude <CLc1> up $2.64, or 3.82
percent, to $71.83 a barrel by 12:54 p.m. EDT (1654 GMT).
                                
 London Brent crude <LCOc1> rose $1.84 to $74.21 a barrel,
with traders citing the current premium of Brent to U.S. crude
and low demand as factors that could have inhibited U.S.
imports last week.
                                
 "When WTI is so much weaker than Brent, it closes the
arbitrage. Even ships that are already loaded up with crude can
be rerouted to other markets where prices are looking more
attractive," said Addison Armstrong, director of Research for
Tradition Energy in Stamford, Connecticut.
                                
 Further the American Petroleum Institute (API) said U.S.
oil demand in July showed signs of improvement, with demand
down 3 percent year-on-year last month compared with an average
drop of around 6 percent in the first half of 2009.
[ID:nWEQ001314]
                                
 "I think these (demand) changes are reflective of an
improving economy, but one must be cautious because these
changes are versus year ago weak numbers," said API chief
economist John Felmy.
                                
 Slumping demand due to the global economic crisis sent
crude oil prices off record high prices near $150 a barrel hit
in July 2008 to below $33 a barrel in December. Expectations
for a potential rebound in the economy could increase fuel
consumption and have helped lift prices.
                                
 Oil prices had fallen earlier on Wednesday, hitting a low
of $68.05 after a near 5 percent slump in Chinese shares sent
doubts rippling through global markets about the strength of
the world economic recovery. [ID:nN19116746]
                                
 U.S. stocks [.N] rose as energy shares jumped following the
EIA data, while the dollar fell [USD/].
                                
 Traders also watched for storms in the Atlantic Basin but
there was no immediate threat seen to U.S. oil installations in
the Gulf of Mexico.
                                
 Powerful Hurricane Bill, a dangerous Category 4 storm with
135 mph (215 kph) winds, raged across the open Atlantic on
Wednesday, days from land but on a path that could menace
Canada's eastern province next week. [ID:nN19474707]
                                
 (Reporting by Matthew Robinson, Robert Gibbson and Gene
Ramos in New York; David Sheppard and Emma Farge in London;
Jennifer Tan in Singapore; Editing by Lisa Shumaker)