Crude oil tumbled the most in four months after a government report showed that the US added fewer jobs than forecast last month, bolstering concern that the economic recovery will slow.
Oil slipped 4.2 per cent after the Labor Department said that payrolls rose by 431,000 in May. Economists projected a 536,000 gain, according to the median forecast in a Bloomberg News survey. Prices extended declines as the euro fell to a four-year low against the dollar, reducing the appeal of commodities as an alternative investment.
``The oil market didn't like the employment numbers,'' said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. ``There's been a change in the perception of how solid the rebound is.''
Crude oil for July delivery declined $US3.10 to $US71.51 a barrel on the New York Mercantile Exchange, the lowest settlement since May 26. It was the biggest one-day drop since Feb. 4. Futures fell 3.3 per cent this week.
Brent crude for July settlement slipped $US3.32, or 4.4 per cent, to end the session on $US72.09 a barrel on the London- based ICE Futures Europe exchange.
The government hired 411,000 temporary workers for the 2010 census, accounting for the bulk of the gain. Private payrolls rose a less-than-forecast 41,000. The growth in jobs in the private sector followed an increase of 218,000 in April that was revised from 231,000.
'Big disappointment'
``The census was responsible for over 400,000 of the new jobs, which is a big disappointment,'' said Michael Fitzpatrick, vice president of energy at MF Global in New York. ``We need evidence of a sustained economic recovery to send oil higher.''
Payroll estimates in the Bloomberg survey of 82 economists ranged from 220,000 to 750,000 after a gain of 290,000 jobs in April. Federal hiring of temporary workers to conduct the decennial population count probably peaked last month, economists said.
``The employment number really had a negative impact on hopes of a strong economic rebound,'' said John Kilduff, a partner at Round Earth Capital, a New York-based hedge fund that focuses on food and energy. ``The number was wildly below what was expected. There's a direct correlation between employment and energy demand, especially gasoline.''
Gasoline for July delivery fell 8.59 cents, or 4.1 per cent, to settle at $US1.9953 a gallon in New York. It was the biggest drop since May 5.
Sovereign-debt crisis
The euro declined against the dollar on concern that Europe's sovereign-debt crisis will spread into the financial system. Societe Generale SA declined to comment on reports that cited speculation the bank may face losses on derivatives. ``If we had something to say, we would have already communicated,'' said Laura Schalk, a Paris-based spokeswoman.
Hungary's economy is in a ``very grave situation,'' a government official said today, increasing speculation that Europe's debt crisis would spread eastward. Prime Minister Viktor Orban, who took office May 29 with pledges to cut taxes and stimulate the economy, yesterday failed to get European Union approval to widen the budget deficit.
``We were already under pressure before the report's release because the news from Europe isn't good,'' said Addison Armstrong, director of market research at Tradition Energy, a Stamford, Connecticut-based procurement adviser. ``When the jobs number came out, just about every market took a hit.''
The euro weakened to $US1.1975, down 1.6 per cent from $US1.2163 yesterday, after touching $US1.1956, the lowest level since March 2006.
The Standard & Poor's 500 Index fell 3.4 per cent to 1,064.88, and the Dow Jones Industrial Average slipped 324.06 points, or 3.2 per cent, to 9,931.22.
Economic doubts
``Doubts about the economy started creeping in as the European sovereign debt crisis grew,'' Sieminski said. ``Over time as it becomes clear that the euro won't disappear and the economy is recovering, oil will rise. We could see it rise $US10, which is what we think would cover production costs.''
Crude oil in New York has declined 18 per cent since reaching a 19-month high of $US87.15 on May 3 on concern about European debt levels.
``We started the day with euro weakness because of the Hungarian fears and bank concerns,'' said Tom Bentz, a broker at BNP Paribas Commodity Futures Inc. in New York. ``We then got the jobless report, which pulled the rug out from under the market. We ended weakly, signaling there will be further downside when we return Monday.''
Oil capture
BP Plc said its effort to divert oil leaking from its Gulf of Mexico well to a ship on the surface is working, with a goal of capturing more than 90 per cent of the spill.
Recovery of oil aboard the drillship began about midnight local time and may have reached a rate of 1,000 barrels a day, based on a BP estimate, US Coast Guard Admiral Thad Allen said today during a conference.
Government scientists had estimated the well was leaking 12,000 to 19,000 barrels of oil a day.
Oil volume on the Nymex was 752,597 contracts as of 3:17 p.m. in New York. Volume totaled 849,170 contracts yesterday, 12 per cent greater than the average of the past three months. Open interest was 1.35 million contracts.
Bloomberg News