Crude fell to the lowest level in almost eight months as employment reports in the US and the euro area signaled fuel demand may tumble.

Oil dropped 3.8 per cent after the Labor Department said American employers added the fewest workers in a year in May. The euro region's jobless rate reached a record high, the European Union's statistics office in Luxembourg said. Brent dropped below $US100 for the first time since October.

“You need a word stronger than terrible for the jobs report,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Everything is driven by the lousy economic data.”

Crude futures for July delivery declined $US3.30 to $US83.23 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 7. Prices are down 24 per cent from this year's closing high of $US109.77 on Feb. 24. Futures decreased 8.4 per cent this week, the most since the week ended Sept. 23.

Brent for July settlement tumbled $US3.44, or 3.4 per cent, to $US98.43 a barrel on the ICE Futures Europe exchange in London, the lowest close since Jan. 27, 2011. The European benchmark fell 7.9 per cent this week and 8.3 per cent this year.

US payrolls climbed by 69,000, less than the most- pessimistic estimate in a Bloomberg survey in which responses ranged from 75,000 to 195,000. The jobless rate unexpectedly rose to 8.2 per cent. It was forecast to hold at 8.1 per cent.

'Serious disappointment'

“That's a very poor jobs report and it's a serious disappointment,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “That's clearly making people think that it's time to get out of the market.”

The Standard & Poor's 500 Index declined 2.4 per cent after touching 1,277.46, the lowest intraday level since Jan. 9. The S&P GSCI Index of 24 commodities slid as much as 3.1 per cent.

Unemployment has exceeded 8 per cent since February 2009, the longest such stretch since monthly records began in 1948.

“Those are terrible, terrible numbers,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “Oil's decline is directly impacted by concerns about US growth and global growth.”

Yesterday, the Commerce Department reported US gross domestic product expanded more slowly than estimated in the first quarter, at a 1.9 per cent annual rate. That was down from a 2.2 per cent prior estimate for January through March.

European unemployment

The jobless rate in the euro zone was at 11 per cent in April and March, the EU's statistics office said today. That's the highest level since the data series started in 1995. The March figure was revised to 11 per cent from 10.9 per cent.

“It appears that we are on the brink of another recession and no one will escape,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “You'll also see weak oil demand.”

The European sovereign debt crisis that began in Greece and then moved to Ireland, Portugal, Italy and Spain has reduced economic growth and fuel consumption.

The 17-nation euro area is in real danger of disintegrating unless policy makers revamp the bloc's fiscal and economic ties, Economic and Monetary Commissioner Olli Rehn said in a speech at a European Commission event in Helsinki.

Around the world, manufacturing is struggling. China led a slowdown in manufacturing across Asia that adds risks for the global economy as Europe's sovereign-debt crisis roils markets. A gauge of manufacturing in the euro zone fell to a three-year low. In the US, manufacturing slowed in May after reaching a 10-month high in April.

Manufacturing misses

Manufacturing reports in all three areas missed economists' expectations for May, threatening the economic recovery and raising worries that fuel demand will decline.

“Traders are starting to realize that the US has its own problems and I actually think we are in worse shape than Europe,” said Peter Schiff, chief executive officer of Westport, Connecticut-based brokerage Euro Pacific Capital, which has $US3 billion in customer accounts. “Oil prices are falling because people are worried about the decrease in global demand.”

Total petroleum demand in the US dropped 1.9 per cent to 18.3 million barrels a day in the week ended May 25, the Energy Department reported yesterday.

Demand declines

“Big declines” in consumption are foreseen in Europe and the US this year from 2011, the International Energy Agency said in its monthly Oil Market Report on May 11. Demand from China and non-industrialized nations outside the Organization for Economic Cooperation and Development is forecast to boost global consumption by 0.9 per cent this year from 2011.

Oil may fall further next week on concern that the euro- area debt crisis will spread, a Bloomberg survey showed.

Seventeen of 33 analysts and traders, or 52 per cent, forecast oil will drop through June 8. Nine respondents, or 27 per cent, predicted an increase and seven estimated prices will be little changed.

Electronic trading volume on the Nymex was 618,296 contracts as of 3:12 p.m. in New York. Volume totaled 646,060 contracts yesterday, 16 per cent above the three-month average. Open interest was 1.44 million.

Bloomberg