By Sonali Paul and Emily Chow

MELBOURNE (Reuters) -Oil futures fell as much as $1 on Thursday over recession fears as a sharp decline in U.S. retail sales and manufacturing output muddied the outlook for demand, while industry data showing a surprise jump in stocks also weighed on prices.

futures were last down 82 cents, or 1%, to $84.16 a barrel at 0330 GMT, after losses of around 1% on Wednesday. U.S. West Texas Intermediate (WTI) crude futures also declined 90 cents, or 1.1%, to $78.58 a barrel.

"The deteriorated U.S. economic data darkened the (oil) demand outlook as recession fears mount again. Risk-off sentiment has sent the growth-sensitive commodities down, typically oil," said Tina Teng, an analyst at CMC Markets.

"Profit-taking might be also a reason that pressed on the oil prices ahead of the U.S. major tech earnings."

U.S. December retail sales fell by the most in a year, weighed by declines in purchases of motor vehicles and a range of other goods, putting consumer spending and the overall economy on a weaker growth path heading into 2023.

Manufacturing output in the United States also fell more than expected in December, recording its biggest drop in nearly two years, as higher borrowing costs hurt demand for goods.

Still, Federal Reserve officials said rates needed to rise beyond 5% even as inflation shows signs of having peaked and economic activity is slowing.

"This raised the spectre of a recession, with risk appetite suffering as a consequence," ANZ Research analysts said in a client note.

Adding to the pall, data from the American Petroleum Institute showed U.S. crude oil inventories rose by about 7.6 million barrels in the week ended Jan. 13, according to market sources.

Nine analysts polled by Reuters had estimated on average that crude inventories fell by about 600,000 barrels.

The big build marks the second consecutive week of large inventory increases.

However, distillate stockpiles, which include diesel and , fell by about 1.8 million barrels against analysts' expectations for a 120,000-barrel increase.

The API report was delayed by a day due to Monday's Martin Luther King Day public holiday in the United States. The government's Energy Information Administration will release its weekly inventory report on Thursday.

With aggressive rate hikes still on the cards, the U.S. dollar climbed, weighing on oil demand as a stronger greenback makes the commodity more expensive for those holding other currencies.