Crude Oil Tumbles as U.S. Jobless Rate Climbs to 26-Year High

Nov. 6 (Bloomberg) -- Crude oil tumbled after the Labor Department reported that the U.S. unemployment rate surged to a 26-year high, undermining speculation that fuel consumption will rebound next year.

Oil dropped 2.8 percent after the report showed that payrolls fell by 190,000 workers in October, sending the unemployment rate to 10.2 percent. Total U.S. fuel demand over the four weeks ended Oct. 30 was 4.5 percent lower than a year earlier, the Energy Department said on Nov. 4.

“The unemployment report raises fears that there will be a double dip to the recession,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “This doesn’t bode well for consumption of commodities such as oil.”

Crude oil for December delivery fell $2.19 to $77.43 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 30. Oil is up 74 percent this year.

Gasoline for December delivery declined 6.34 cents, or 3.2 percent, to end the session at $1.9243 a gallon in New York. It was the lowest settlement price since Oct. 14. Heating oil for December delivery dropped 5.41 cents, or 2.6 percent, to settle at $2.0035 a gallon.

“This market was looking for a direction and the unemployment numbers, which were a little bit of a surprise, gave it one,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “The stock market may move higher but oil demand will be hurt. If people aren’t working, they aren’t going to consume more fuel.”

Unemployment Rate

The jobless rate grew from 9.8 percent in September. Revisions added 91,000 to payroll figures previously reported for September and August. Payrolls were forecast to drop 175,000 after an initially reported 263,000 decline for September, according to the median estimate of 84 economists surveyed by Bloomberg News.

“Seeing the rate rise above 10 percent has taken some of the air out the bubble, and raises questions about the recovery,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The U.S. economy has lost 7.3 million jobs since the recession began in December 2007, when the unemployment rate stood at 4.9 percent.

“We are in a jam,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “Any corrective action that can be taken to improve the economy will have consequences, not all of them positive.”

Oil futures gained of 0.6 percent this week. The contract had been pushed higher earlier this week by an Energy Department report showing crude-oil supplies unexpectedly dropped last week.

Lagging Demand

“Demand in the U.S. is still lagging,” said Olivier Jakob, managing director of Zug, Switzerland-based Petromatrix GmbH. “It’s difficult to find fundamental justification for these prices. The big move from $65 to $80 was due to a lot of buying from very large speculators, linked to the dollar and equities.”

U.S. inventories of crude oil fell 3.94 million barrels to 335.9 million in the week ended Oct. 30, according to the Energy Department. The drop left supplies 7.2 percent higher than the five-year average for the period. Stockpiles of gasoline and distillate fuel are also higher than average.

Oil fell 1 percent yesterday as U.S. equities surged. It was the first time since Oct. 27 that oil had not moved in the same direction as the Standard & Poor’s 500 Index.

Discerning Investors

“We may be starting to see a discernment among investors when it comes to commodities,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “Commodities had been closely tracking equities, but that’s not been the case the last two days. There’s a growing realization that a weak U.S. economy isn’t good for commodity demand.”

The Reuters/Jefferies CRB Index of 19 commodities declined 1.6 percent to 269.81.

Brent crude oil for December settlement declined $2.14 or 2.7 percent, to $75.85 a barrel on the London-based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 540,588 contracts as of 3:01 p.m. in New York. Volume totaled 411,506 contracts yesterday, the least since Sept. 28 and 27 percent lower than the average over the past three months. Open interest was 1.23 million contracts.

The exchange has a one-business-day delay in reporting open interest and full volume data.