Oil Settles Below $41 as Unemployment Rises

Oil prices fell as data showing a big rise in U.S. unemployment deepened the gloomy outlook for the world's biggest oil consumer.

U.S. employers slashed payrolls by 524,000 in December, driving the national unemployment rate to its highest level in almost 16 years, a government report showed, suggesting the year-long recession was deepening.

The jobless rate rose to 7.2 percent, the highest since January 1993. Analysts polled by Reuters had predicted a reduction of 550,000 jobs in December.

U.S. light, sweet crude fell 87 cents to settle at $40.83 a barrel. London Brent crude also traded lower.

"The obvious calculation for oil prices is that perhaps the demand calculations which pulled prices down to an intraday low of $32.40 on Dec. 19 were correct,'' Mike Fitzpatrick, vice president at MF Global, said in a note.

"The overhang of bearish crude inventory continues to be what is pressuring crude futures,'' said Dominick Chirichella, senior partner at the Energy Management Institute in Point Pleasant, New Jersey.

Government data released Wednesday showed a larger-than-expected jump in oil stocks, which helped to push prices lower.

Evidence that oil producers were cutting output did not appear to be supporting prices much.

Top crude exporter Saudi Arabia was the latest member of the Organization of the Petroleum Exporting Countries to show it was cutting output in line with a deal agreed in December.

It will deepen its supply cuts in February from January to at least three Asian crude buyers, industry sources said on Friday.

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Kuwait and Iran also told customers this week of bigger supply curbs this month, after OPEC agreed its biggest ever production cut in December in a bid to bolster prices.

One prop of the recent rally that had lifted oil prices since the start of the year looked likely to be removed, after Russia reached an agreement to deploy European Union monitors to ensure the smooth flow of gas via Ukraine.

The threat of widening supply disruptions in Europe from the Russia-Ukraine gas dispute, as well as Israel's invasion of Gaza, had boosted oil to a one-month high of $50.47 on Tuesday.

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While the Gaza conflict does not directly threaten oil supplies, Middle East unrest can bolster prices because countries in the region pump about a third of the world's oil.

Oil prices have fallen more than $100 from a record peak of above $147 a barrel in July as the global economic downturn hits demand for fuel. It settled at $33.87 a barrel on Dec. 19, the lowest level since Feb. 10, 2004.

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