Oil edged higher above $71 a barrel on Wednesday after the release of U.S. government figures showed crude inventories in the world's largest energy consumer fell last week, boosting the view demand is picking up.

The weekly report from the U.S. Energy Information Administration (EIA), the statistical arm of the Department of Energy, showed crude stocks falling by 1 million barrels, against market expectations for a 2.2 million drop.

Gasoline stocks leapt by 2.9 million barrels, far more than the 1 million barrels predicted by the market as refiners upped production. Distillate stocks -- which include diesel and heating oil -- rose by 700,000 barrels, more than double the predicted 300,000 barrel build.

The fuel inventories jumped a lot, and that's a bearish factor, but one offset by the crude draw, Tradition Energy's Gene McGillian said.

Crude is pivoting around $70 a barrel with factors on either side to hold it there. The key is going to be when demand figures for gasoline and distillate pick up.

The EIA said product demand has recovered by 5 percent since the same time last year, when it had been slashed by the onset of the most severe stage of the financial crisis and the hangover from crude's leap to almost $150 a barrel in July of that year.

U.S. crude for November delivery rose 27 cents to $71.15 a barrel by 1508 GMT (11:08 a.m. EDT), adding to Tuesday's gains of 47 cents. London Brent crude rose 24 cents to $68.80.

Oil has rebounded from an 11-week low of around $66 in late September back above the $70 level, but some analysts caution it could slip back in the near term.

Oil looks like it's on shakey ground as we approach the U.S. third quarter (corporate) reporting season. A lot of near term price gains have been won off a rebounding equity market, said Mark Pervan, a commodities analyst at the Australia & New Zealand Bank.

After having jumped by around 40 percent in the second quarter, oil prices have squeezed out a gain of only 1 percent in the last quarter, trading in a band of between $65-$75.

A dip in European and U.S. equities weighed on oil on Wednesday, but a strong stock market jump in Asia had seen prices rise as high $71.76 a barrel.

While the global economy is healing from the financial crisis, the recovery, along with energy demand, remains fragile.

Weakness in the dollar has supported commodities priced in the greenback in recent days, as they become cheaper for holders of other currencies.

The dollar was slightly firmer on Wednesday, but gold jumped to another fresh record high of $1,408.20 an ounce.

(Additional reporting by Joshua Schneyer in New York and Fayen Wong in Perth; Editing by William Hardy)