Dec. 5 (Bloomberg) -- Crude oil fell for a sixth day, capping the biggest weekly drop since the Persian Gulf War in 1991, on concern demand will decline after a report showed U.S. employers cut jobs in November at the fastest pace since 1974.

Oil is down 25 percent since Nov. 28 as the recession deepened in the U.S., Europe and Japan. Payrolls fell by 533,000 last month, the Labor Department said today. The International Energy Agency, U.S. Energy Department and OPEC lowered demand forecasts over the past month because of the contraction.

“It’s all about the economy,” said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. “There’s not much that can be done right now to keep prices from falling off a cliff.”

Crude oil for January delivery fell $2.86, or 6.5 percent, to $40.81 a barrel at 2:51 p.m. on the New York Mercantile Exchange, the lowest settlement since Dec. 10, 2004. Prices have dropped 72 percent since reaching a record $147.27 on July 11.

“After the jobless number, any bulls that were left in the market will become extinct,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “There are no redeeming features in these numbers.”

U.S. payrolls were forecast to decline by 335,000, according to the median estimate in a Bloomberg News survey. November’s drop exceeded all 73 forecasts by respondents.

‘Horrible’ Numbers

“The numbers were horrible,” said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. “We were expecting something bad but nothing of this magnitude. This is bound to increase the negative sentiment that’s been here since summer.”

The U.S. entered a recession in December 2007, the National Bureau of Economic Research, a non-profit panel of economists that dates American business cycles, said Dec. 1. U.S. equity markets declined yesterday as oil stocks dropped on forecasts of $25-a-barrel crude from analysts at Merrill Lynch & Co.

The U.S., European Union and Japan, which are in the first simultaneous recession since World War II, consumed 48 percent of the world’s oil in 2007, according to BP Plc, which publishes its Annual Statistical Review of World Energy each June.

The IEA cut its global oil-demand outlook for 2009 because of the world economic slowdown. The Paris-based agency reduced its forecast by 170,000 barrels a day from its November estimate to 86.37 million barrels a day, David Martin, an IEA analyst, said in a phone interview today as the agency issued an update to its July Medium-Term Oil Market report.

Consumption Decline

U.S. fuel demand during the four weeks ended Nov. 28 was down 6.2 percent from a year earlier, an Energy Department report showed Dec. 3.

Brent crude oil for January settlement fell $2.54, or 6 percent, to $39.74 a barrel on London’s ICE Futures Europe exchange, the lowest settlement since Dec. 29, 2004.

Falling prices may lead the Organization of Petroleum Exporting Countries to reduce production.

Qatar’s oil minister said on Dec. 3 that OPEC will “definitely” lower output at its next meeting in Algeria on Dec. 17. Abdullah bin Hamad al-Attiyah said he doesn’t know by how much the group, which is responsible for more than 40 percent of global supply, will cut at the meeting.

“OPEC is going to have to show much better compliance,” said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. “They must feel somewhat dejected that the cut that was thrown at the market has had almost no impact. Although they aren’t powerless, they can do very little to support prices until there is a semblance that demand is leveling.”

OPEC Production Cut

OPEC oil ministers agreed on Oct. 24 in Vienna that the 11 members with quotas would lower supply by 1.5 million barrels a day starting in November. Production by the 11, excluding Iraq and Indonesia, declined 725,000 barrels to 28.24 million barrels a day last month, according to data compiled by Bloomberg News.

“Analysts usually look to OPEC spare capacity and inventories as a guide to oil prices,” said Adam Sieminski, Deutsche Bank’s chief energy economist, in Washington. “Right now it’s the dollar, stock markets and the economy that are the main drivers.”

The U.S. dollar rose and the stock market declined as the economy slowed, driving commodities lower.

Gasoline for January delivery declined 6.83 cents, or 7 percent, to 90.12 cents a gallon in New York, the lowest settlement since the contract for reformulated gasoline was introduced in October 2005.

Pump prices have followed futures lower. Regular gasoline, averaged nationwide, dropped 1.6 cents to $1.773 a gallon, AAA, the largest U.S. motorist organization, said on its Web site today. It’s the lowest since January 2005. The fuel has fallen 57 percent from the record $4.114 a gallon reached on July 17.

“Lower prices should help us get out of this mess,” Sieminski said. “We should be thankful for lower prices for a limited amount of time, but these are not sustainable levels. Capital expenditures are staring to be cut.”

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

Last Updated: December 5, 2008 16:21 EST