Oil retreated for the third time in four days as data showed US economic growth weakened and crude inventories rose to a three-month high.
Prices fell as much as 1.9 percent as more Americans than forecast submitted claims for unemployment insurance last week and manufacturing in the New York and Philadelphia regions showed contraction. Oil stockpiles increased to 375.9 million barrels last week as production grew to an 18-year high.
"The jobless claims were very high and the economic news was bearish," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $US1.4 billion. "Demand will remain soft given how the economy is and production has been very high."
Crude oil for December delivery slid $US1.33, or 1.5 percent, to $US84.99 a barrel on the New York Mercantile Exchange at 1:28 p.m. Prices are down 14 percent this year.
Brent crude for January settlement declined 95 cents, or 0.9 percent, to $US107.53 on the London-based ICE Futures Europe exchange. The January contract was more active than the December contract, which expires today and gained $US1.09, or 1 percent, to $US110.70.
US jobless claims climbed to 439,000 in the week ended Nov. 10, the most since April 2011, the Labor Department reported. Analysts surveyed by Bloomberg had expected the claims to reach 375,000. Several states said the increase was due to Hurricane Sandy, which hit the northeastern part of the US in late October, according to the department.
"Prices are reflecting the bad economic news," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "The weak economy is the biggest overall factor in the oil market."
The Federal Reserve Bank of New York's general economic index was minus 5.2 this month after minus 6.2 in October. Manufacturing contracted as Sandy knocked out electrical power and limited activity.
The Federal Reserve Bank of Philadelphia's general economic index decreased to minus 10.7 in November from 5.7 a month earlier.
"I still think economic uncertainty is the primary driver of the market," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
The US is the world's biggest oil consumer, using 18.8 million barrels a day in 2011, according to BP Plc's Statistical Review of World Energy.
In Europe, the euro-area economy succumbed to a recession for the second time in four years. Gross domestic product in the 17-nation bloc slipped 0.1 percent in the third quarter after a 0.2 percent decline in the previous three months, the European Union's statistics office in Luxembourg said today.
Crude inventories grew 1.09 million barrels in the week ended Nov. 9, the Energy Department reported. Analysts surveyed by Bloomberg had expected a gain of 2.65 million. US oil production rose for a 10th week to 6.71 million barrels a day, the most since May 1994.
Gasoline stockpiles slid 440,000 barrels to 201.9 million and distillate fuels, which include heating oil and diesel, dropped 2.54 million to 115.5 million barrels, department data showed.
Gasoline demand averaged 8.64 million barrels a day in the four weeks ended Nov. 9, department data showed. That's down from as high as 9.16 million reached on Aug. 31.
"The strong production and inventory numbers are bearish," said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. "Oil followed the equities."
US stocks fell as Wal-Mart Stores Inc. forecast earnings that missed estimates. The Standard & Poor's 500 Index declined as much as 0.6 percent.
Oil rose earlier on concern escalating Middle East tension will disrupt supplies. Israel and Palestinian militants in the Gaza Strip exchanged rocket fire and airstrikes a day after Israel killed Hamas's military leader. Defense Minister Ehud Barak said Israel may carry out a ground operation in Gaza if needed.
Electronic trading volume on the Nymex was 384,818 contracts as of 1:26 p.m. Volume totaled 700,161 contracts yesterday, 32 percent above the three-month average. Open interest was 1.54 million.