Oil Falls Below $80; Demand Outlook Uncertain

NEW YORK (Reuters) - Oil fell nearly 1 percent to below $80 a barrel on Thursday, as doubts about a recovery in oil demand outweighed positive economic signals.

U.S. crude for December lost 78 cents to settle at $79.62. London Brent crude fell 90 cents to settle at $77.99

"Economic indicators continue to show an economy on the mend, but we are not seeing any real signs of that in energy demand," said Peter Beutel, president at Cameron Hanover in New Canaan, Connecticut.

The number of U.S. workers filing new claims for jobless insurance fell more than expected last week to a 10-month low, the Labor Department said, with continuing claims dropping to the lowest since March.

U.S. non-farm productivity in the third quarter rose at its fastest pace in six years, government data showed on Thursday.

Oil markets have been looking to equities and wider macroeconomic data in recent months for signs the economic crisis is easing and energy demand may rebound.

These external factors have been largely responsible for this year's price rally, which has seen prices nearly double since lows near $40 a barrel in January.

But rallying U.S. equity prices on Thursday had a limited impact on oil as the market instead focused on ballooning product stocks. <.N>

U.S. distillate stocks -- often taken as a more faithful snapshot of demand than crude oil -- fell 400,000 barrels compared to analyst expectations for a 1 million-barrel decline. They remain near 26-year highs and analysts said this will cap price rises in the event of a cold winter.

"The economy is still muddled. While the EIA data had crude supply lower, product supplies weren't very much lower even though refinery use fell 1.2 percentage points," said Gene McGillian, analyst at Tradition Energy.

The oil price initially bounced after data showed U.S. jobless claims fell more than expected to a 10-month low of 512,000 but oil's price gains were short-lived.