Oil prices extend decline on worries about US economy

Oil prices fell Monday as a report of growing unemployment in the United States raised concerns of an economic downturn there that could curb demand for oil.

The U.S. Labor Department said the unemployment rate jumped to 5 percent in December _ its highest level in more than two years _ from 4.7 percent in November. Analysts had expected December unemployment at 4.8 percent.

"Many economists in the U.S. have talked about the potential of the U.S. getting into a recession,'' said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "This latest government report ... has added to the concerns about the economy.''

Light, sweet crude for February delivery dropped 65 cents to US$97.26 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell US$1.27 to settle at US$97.91 a barrel on Friday.

The government also said in the report that employers created just 18,000 jobs last month, less than the 70,000 analysts had expected and the smallest increase since August 2003.

Traders are becoming more concerned that record high energy prices are helping to push the economy into recession.

"If the U.S. goes into a significant downturn, that will impact oil demand there. If it goes into recession, that may also affect other economies, for example, demand in high-growth China could also slow down,'' Shum said.

Any slowdown in the U.S. economy would hurt exporters in Asia that rely heavily on American consumer demand for sales and growth. Energy traders could have interpreted the jobs data positively _ in recent months, oil prices have often moved higher after the government reported dismal economic data because traders believe signs of economic weakness raise the chances that the Fed will cut interest rates. Lower interest rates weaken the dollar, whose decline has contributed to more expensive oil.

But analysts say a recession is seen as much more important to long-term energy prices than the easy money that is a byproduct of lower interest rates.

In London, Brent crude futures fell 50 cents to US$96.29 a barrel on the ICE Futures exchange.

Heating oil futures fell 1.16 cents to US$2.6719 a gallon (3.8 liters) while gasoline prices dropped 1.1 cents to US$2.5 a gallon. Natural gas futures added 0.4 cents to US$7.845 per 1,000 cubic feet.