Oil jumped more than 3 percent to $47 a barrel on Monday as a naval incident between the United States and China, the world's top oil consumers, boosted geopolitical tensions and as dealers pondered the possibility of deeper production cuts by OPEC.

The U.S. State Department said five Chinese ships, including a naval vessel, harassed an unarmed U.S. Navy ocean surveillance ship in international waters in the South China Sea on Sunday.

Crude prices are up, I think, in a knee-jerk reaction to the news of Chinese vessels harassing a U.S. Navy ship in the South China Sea, said Phil Flynn, analyst at Alaron Trading in Chicago.

U.S. crude settled up $1.55 at $47.07 a barrel, while London Brent crude fell 72 cents to settle at $44.13 a barrel.

Crude prices have dropped from record highs over $147 a barrel hit in July as the economic crisis crimps demand. The Organization of Petroleum Exporting Countries agreed a series of deep output cuts last year in an effort to stem the fall, and next meets on March 15 to set output policy again.

OPEC Secretary-General Abdullah al-Badri said the 12-member producer group would consider reducing output again at the meeting.

All options are on the table, he told reporters in Qatar when asked if OPEC, which pumps more than a third of the world's oil, would announce another reduction.

Top OPEC exporter Saudi Arabia, however, wants the cartel to discuss stricter compliance with existing supply curbs, a Saudi-owned newspaper reported, and cited sources as saying the group should not discuss another cut.

OPEC has agreed to lower oil production by a total of 4.2 million barrels per day from September levels and a Reuters survey suggested the group has come close to meeting that pledge with compliance of more than 80 percent.

Saudi Arabia already plans to lower supplies to one European oil company in April, according to a trading source.

I think they will seek better compliance with existing quotas, said Christopher Bellew, oil broker at Bache Commodities in London.

My feeling is that OPEC is able to prevent further price weakness but until the over-hang of oil stocks begins to be eroded, they will struggle to raise prices.

Royal Dutch Shell declared force majeure, a formal suspension of its supply commitments, on its shipments of Nigerian Forcados crude due to the impact of explosions on a pipeline last week.

(Reporting by Matthew Robinson, Gene Ramos, and Robert Gibbons in New York; Joe Brock, Chris Baldwin and Christopher Johnson in London; editing by Jim Marshall)

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