Oil rebounded on Tuesday after China said industrial production grew faster than expected in May, easing concerns over a global economic slowdown and soothing worries that Europe's debt crisis would dent energy demand.

Brent crude for July climbed 19 cents to $119.29 a barrel by 0332 GMT, widening its premium to US crude benchmark West Texas Intermediate (WTI) to a record of more than $22 a barrel. July WTI shed 14 cents to $97.16.      

China's May industrial output jumped 13.3 per cent from a year earlier, topping forecasts for a 13.2 per cent gain, government data showed on Tuesday. Consumer price inflation accelerated to a 34-month high, signaling Beijing may continue to tighten monetary policy.

'China is still ticking along nicely,' said Ben Le Brun, an analyst at CMC Markets in Sydney. 'The government needs to tread a very fine line because the economy is still very hot. They may have to tighten again and that will have some effect on growth and a disruptive influence on oil demand, but I can't see anything derailing it.”

Brent had fallen as much as 0.5 per cent before the release of the Chinese data on prospects of lower European oil demand after rating agency Standard & Poor downgraded Greece to the lowest-rated country in the world.

Although the oil market read China's higher-than-expected industrial output as positive, the pace of growth was the slowest since November and underlined other data suggesting the world's second-biggest economy is slowing down.

China's money growth slowed to a 30-month low in May and banks extended fewer new loans than expected as monetary policy weighed on bank lending.

Supply constraints

A fresh catalyst for higher Brent prices emerged on Monday, when Royal Dutch Shell declared force majeure on its Nigerian Bonny Light crude oil loadings for June and July. Shell blamed production cutbacks caused by leaks and fires on its Trans-Niger Pipeline.

Production of African crude priced off Brent has been disrupted since February, when Libya's civil war halted exports of about 1.3 million barrels per day (bpd) of high quality, light sweet crude. Top oil exporter Saudi Arabia increased output to partly compensate for the Libyan outage.

This means the kingdom's cushion of spare oil production capacity is thinning far faster than widely believed, threatening to trigger price spikes in the months ahead, energy industry experts warned at the Reuters Global Energy and Climate Summit on Monday.

Saudi Arabia is unilaterally raising oil output after the Organization of the Petroleum Exporting Countries last week failed to reach a consensus to pump more oil.

US crude oil inventories fell last week by 1 million barrels, on lower imports and as higher margins encouraged refiners to raise utilisation rates, a Reuters poll ahead of weekly industry and government reports showed on Monday.

Industry group American Petroleum Institute will release its weekly report on Tuesday at 2030 GMT, followed by government statistics from the US Energy Information Administration on Wednesday at 1430 GMT. – Reuters