Oil Caps Biggest Weekly Drop in Six Months on Jobs

West Texas Intermediate crude capped the biggest weekly drop in six months as U.S. employers hired less than half the number of workers forecast in March, raising concern that economic growth won’t be strong enough to support oil demand.

Prices tumbled for the fourth time in five days after the Labor Department said payrolls climbed by 88,000, the smallest gain in nine months. Economists surveyed by Bloomberg had expected an advance of 190,000. U.S. inventories increased to a 22-year high in an April 3 Energy Information Administration report as oil production stayed near the most since 1992.

“People are surprised by the jobs numbers,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The market had been inflated for a while. Whether this represents the beginning of a bear run is not clear, but it’s clearly the ending of the bull run.”

WTI oil for May delivery dropped 56 cents, or 0.6 percent, to $92.70 a barrel on the New York Mercantile Exchange, the lowest settlement since March 21. The 4.7 percent weekly loss was the biggest since Sept. 21. Trading was 25 percent above the 100-day average for the time of day at 2:43 p.m.

Brent crude for May settlement declined $2.22, or 2.1 percent, to end the session at $104.12 a barrel on the London-based ICE Futures Europe exchange, the lowest closing price since July 24. Trading was 79 percent above the 100-day average.

Brent Contango

Front-month Brent futures settled below the second-month contract for the first time in nine months, a pricing structure known as a contango which may signal declining near-term demand or rising supply. June Brent ended the session at $104.15.

Brent’s premium to WTI narrowed to $11.42, the least since June. Brent has slumped 6.3 percent this year, while WTI is up 1 percent.

The selloff in Brent is “likely overdone,” Goldman Sachs Group Inc. analysts including Stefan Wieler said in a report dated yesterday. The bank maintained its Brent price forecast of $110 a barrel for this quarter. The European benchmark averaged $112.64 in the first quarter.

The unemployment rate, derived from a separate survey of households, fell last month to 7.6 percent from 7.7 percent in February, the Labor Department said. The figure, the lowest since December 2008, reflected a 496,000 decline in the size of the labor force. The labor force participation rate fell to 63.3 percent, the lowest since May 1979.

Unemployment Rate

“This is a disappointing jobs report and oil should trade lower,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant.

This week’s loss in WTI wiped out last week’s gain of 3.8 percent, which came after a Commerce Department report showed that U.S. gross domestic product rose at a 0.4 percent annual rate in the fourth quarter, up from prior estimate of 0.1 percent.

U.S. crude stockpiles expanded by 2.71 million barrels in the week ended March 29 to 388.6 million, the most since 1990, the Energy Information Administration, the Energy Department’s statistical arm, said on April 3. Production was 7.15 million barrels a day.

Crude will probably fall next week on signs of slower economic growth, a Bloomberg survey showed. Fourteen of 26 analysts and traders, or 54 percent, forecast WTI will drop through April 12. Eight respondents, or 31 percent, predicted a gain and four said there will be little change.

Iran Talk

Oil also declined as euro-area retail sales fell in February. Sales in the 17-nation currency bloc decreased 0.3 percent from January, when they rose a revised 0.9 percent, the European Union’s statistics office in Luxembourg said today.

The U.S. and the European Union accounted for 36 percent of world oil demand in 2011, according to BP Plc’s Statistical Review of World Energy.

International negotiators from the U.S., Britain, France, Germany, Russia and China are holding nuclear-program talks with Iran today in Almaty, Kazakhstan. Early last year, tensions with Iran contributed to higher oil prices and a European Union embargo that started in July has curbed the country’s ability to export crude.

Oil reduced losses as the dollar weakened against the euro on speculation that the Federal Reserve will continue to support economic growth with its bond-buying stimulus program, known as quantitative easing.

“The Fed’s QE program is going to continue longer,” Schenker said.

Fed Vice Chairman Janet Yellen threw her support behind a proposal to vary the pace of the central bank’s bond buying based on changes in prospects for the world’s largest economy during a speech yesterday.

Dollar Declines

The dollar fell to $1.304 per euro, the lowest level since March 25. A weaker dollar increases oil’s appeal as an investment alternative.

Implied volatility for at-the-money WTI crude options expiring in May was 19.6 percent at 3:40 p.m., down from 20.2 percent yesterday.

Electronic trading volume on the Nymex was 574,800 contracts as of 3:42 p.m. It totaled 782,882 contracts yesterday, 36 percent above the three-month average. Open interest was a record 1.76 million contracts.

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