Oil Curbs Biggest Weekly Drop Since May on U.S. Jobs, Italy

Oil rose for the first time in six days in New York and curbed the biggest weekly drop in three months as the U.S. added more jobs than forecast in July and the Italian government said it will speed up austerity measures.

Futures gained 0.3 percent after the Labor Department reported that payrolls rose by 117,000 workers, more than the 85,000 median estimate in a Bloomberg News survey of economists. Equities halted the worst slide in more than two years after markets tumbled yesterday amid concern that the economic recovery in the U.S. and Europe is faltering.

“We’re looking for signs of recovery,” said Carl Larry, director of energy derivatives and research with Blue Ocean LLC in New York. “We’re getting a lift from Europe.”

Oil for September delivery rose 25 cents to settle at $86.88 a barrel on the New York Mercantile Exchange. Prices tumbled 9.2 percent this week, the biggest drop since the week ended May 6.

Brent crude for September settlement on the London-based ICE Futures Europe exchange increased $2.12, or 2 percent, to $109.37 a barrel. Brent fell 6.3 percent this week. The European benchmark contract was at a $22.49 a barrel premium to U.S. futures after reaching a record $22.67 on Aug. 2.

Crude swung between gains and losses in intraday trading, with prices touching an eight-month low of $82.87 a barrel on economic uncertainty before rebounding after the U.S. Labor Department reported that employers added more jobs than forecast in the U.S. in July, a signal that fuel demand may increase.

Unemployment Rate

The U.S. jobless rate slipped to 9.1 percent in July from 9.2 percent in June, the Labor Department report showed.

Italian President Silvio Berlusconi and Finance Minister Giulio Tremonti said the country will adopt a balanced budget amendment, liberalize its labor market and speed asset sales. They spoke at a joint press conference in Rome as they sought to earn the confidence of investors who have driven Italy’s bond yields to euro-era highs.

The S&P 500 was up 0.5 percent at 1,206.14 when Nymex floor trading closed at 2:30 p.m. in New York. It slipped 0.69 point to 1,199.38 at 4:05 p.m. in New York. The Dow Jones Industrial Average rose 60.93 points, or 0.5 percent, to 11,444.61.

The euro strengthened 1.3 percent to $1.4281 at 4:15 p.m. in New York, boosting the appeal of commodities as an alternate investment to the U.S. dollar.

New York crude futures wiped out all their gains for 2011 yesterday, equities plunged and 21 of the 24 commodities on the Standard & Poor’s GSCI Index declined amid growing signals that the U.S. economy is faltering and as the debt crisis in Europe threatened to spread to Italy and Spain.

Fiscal Limits

“Europe and the U.S. appear to have reached the limits of what could be done on the fiscal front, with poor results, and are now moving together toward austerity policies,” said Christophe Barret, global oil analyst at Credit Agricole in London, in a note to clients today. He said prices will fall over the next few weeks and forecast an $85 price for New York futures and $95 for Brent.

U.S. lawmakers agreed this week to cut the federal deficit by $917 billion as part of a plan to raise the nation’s debt ceiling by $2.1 trillion and stave off a default.

Crude in New York, which fell below a long-term Fibonacci support yesterday, has crossed the bottom of a technical downtrend channel at about $85.20 a barrel, according to data compiled by Bloomberg. The 14-day relative strength index for West Texas Intermediate futures also dropped below 30, signaling the market may have fallen too quickly. Today’s reading is 26.7, compared with 45.2 a week ago.

‘Tumultuous Week

“It looks like crude is licking its wounds here,” said Matt Smith, a commodities analyst for Summit Energy Services Inc. in Louisville, Kentucky. “It was indecisive after a tumultuous week.”

Prices also increased as products surged after Valero Energy Corp. said it shut both crude units at is Memphis refinery and an Iranian pipeline exploded in Larstan in the west of the country, according to the state-run Mehr news service.

Gasoline for September delivery gained 6.8 cents, or 2.5 percent, to settle at $2.8052 a gallon on the Nymex.

“There’s extreme volatility and people are trying to come up with a reason behind every $2 move,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consulting company.

Implied volatility for at-the-money Nymex crude oil options expiring in September, a measure of expected price swings in futures and a gauge of options prices, was 41.4 percent at 3 p.m. in New York, down from 42.4 percent yesterday and up from 32.1 percent a week ago.

Oil volume in electronic trading on the Nymex was 855,922 contracts as of 4:15 p.m. in New York. Volume totaled 1.01 million contracts yesterday, 47 percent above the average of the past three months and the highest level since June 15. Open interest was 1.55 million contracts.