Crude oil futures fell sharply, dropping below $86 a barrel, after the U.S. economy failed to add new jobs for the first time a year in August.

In a sharp reversal from a intraday one-month high near $90 a barrel on Thursday, October crude oil futures dropped to a low of $85.69 a barrel after the Labor Department reported the nonfarm payroll figure was unchanged from July, the worst performance since September 2010. Economists expected a rise of 80,000 jobs in the month. The unemployment rate was steady at 9.1%.

Traders said the prices could stabilize later in the session as players adjust positions ahead of the three-day Labor Day weekend and as a growing storm is disrupting some oil and gas output in the U.S. Gulf of Mexico.

The storm, tropical depression 13, could strengthen into a tropical storm, and was threatening the New Orleans area, the National Hurricane Center said.

Seven companies have evacuated nine platforms in the Gulf of Mexico and shut in nearly 80,000 barrels a day of oil production, which is 5.7% of the flow from the region, the Bureau of Ocean Energy Management, Regulation and Enforcement said. Some 2.4% of the Gulf's natural gas output, or 127 million cubic feet, was also shut in by mid-afternoon on Thursday as a precaution ahead of the storm.

Light, sweet crude oil for October delivery was down 3.2%, or $2.85 at $86.08 a barrel. ICE October Brent crude was $2.12 a barrel lower, at $112.17 a barrel.

"When the smoke clears and we see how the stock market reacts, we could see a rebound," said Carl Larry, director of energy derivatives and research at Blue Ocean Brokerage.

Larry said he believes the weak jobs data strongly raises the odds for new economic stimulus activity from the Federal Reserve, which would be supportive for prices. "The focus now will be on Fed stimulus," he said. "I think it's a given, now, with these jobs numbers."

The White House said Thursday unemployment could remain around 9% well into 2012 and President Obama will address a joint session of Congress on Thursday evening on the economic situation.

Traders said prices are likely to test the low end of the recent $80-$90 range as a clearer economic strategy evolves. "Unless the economy really catches fire, with unemployment down, we won't see $100 through the end of the year," Larry said.

Reformulated gasoline blendstocks futures for October was 4.83 cents lower, at $2.8442 a gallon. Heating oil futures for October delivery was 4.60 cents lower at $3.058 a gallon.