OIL FUTURES: Crude Drops Below $78/Barrel As Jobless Rate Rises
11/06/2009 08:13AM
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NEW YORK (Dow Jones)--Crude futures sank Friday as U.S. unemployment hit a 26-year high, raising the prospect that oil demand would take longer to recover than many had expected.
Light, sweet crude for December delivery recently traded $2.12, or 2.7%, lower at $77.50 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded $2.02, or 2.6%, lower at $75.97 a barrel.
Oil prices dropped off after the U.S. Labor Department reported that the unemployment rate rose to 10.2% in October, a 26-year high and above the consensus forecast of 9.9%.
Rising joblessness is the latest sign that the U.S. economic recovery is coming slowly and with setbacks. Double-digit unemployment immediately caused already jittery investors to sell oil in favor of "safe haven" assets like the dollar.
"We were just treading water before the (unemployment) number came out ... it looks like that's the dominant factor right now," said Addison Armstrong, an analyst with Tradition Energy in Stamford, Conn., adding that the gloomy jobs data could send oil as low as $77 a barrel before buyers are lured back into the market.
Unemployment is one of the most closely watched economic indicators in the oil market, as joblessness is a major drag on U.S. gasoline demand, which makes up about 10% of total global oil consumption. High unemployment would keep fewer commuters on the roads and hold down discretionary spending, even if the overall economy is growing.
Any delay in a demand rebound from the world's biggest oil consumer would also prolong the glut of crude and fuel that has weighed on futures since the early days of the economic downturn last year. U.S. refiners have cut back sharply on fuel production in the hopes of reducing inventories of gasoline and distillate, a category that includes heating oil and diesel.
But those efforts are futile without improving demand, as refiners using less crude would merely trade a fuel surplus for an oil glut.
"Lower refinery runs are helping to rebalance the market, but an uptick in demand will be necessary to jumpstart the distillate cleanup," wrote analysts with JPMorgan Chase & Co. (JPM)
Front-month December reformulated gasoline blendstock, or RBOB, recently traded 5.82 cents, or 2.9%, lower at $1.9295 a gallon. December heating oil traded 5.71 cents, or 2.8%, lower at $2.0005 a gallon.
-By Brian Baskin, Dow Jones Newswires; 212-416-2453; brian.baskin@dowjones.com