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 August 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.

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 up $2.64, or 3.82 percent, to $71.83 a barrel by 12:54 p.m. EDT.

London Brent crude 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.

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.

U.S. stocks <.N> rose as energy shares jumped following the EIA data, while the dollar fell.

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 winds, raged across the open Atlantic on Wednesday, days from land but on a path that could menace Canada's eastern province next week.

(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)