Oil prices settles below $78 a barrel as US unemployment rate tops 10 per cent

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An oil rig is seen at sunset in the desert oil field of Sakhir, Bahrain recently. (HASAN JAMALI / AP PHOTO)

NEW YORK - Oil prices tumbled Friday after the government said the U.S. unemployment rate topped 10 per cent for the first time since 1983.

Benchmark crude for December delivery gave up US$2.19 to settle at $77.43 a barrel on the New York Mercantile Exchange. In London, Brent crude for December delivery shed $2.12 to settle at $75.87 on the ICE Futures exchange.

America's thirst for petroleum has slumped all year. With nearly 16 million people now out of work, traders found few reasons to expect it will return any time soon. Crude prices shed most of their gains from earlier in the week, when financial reports showed consumers were spending more, and companies were squeezing more productivity out of their workers.

Prices slumped even after weather forecasters said tropical storms would sweep through the Gulf of Mexico over the weekend, likely disrupting oil production.

"There's some shock value that comes with double-digit unemployment," said Phil Flynn, an analyst with PFGBest. "It's worse than expected. If the job market isn't strong, then the economy isn't strong."

For most of the year, oil prices shrugged off growing unemployment and steadily climbed above $80 a barrel as investors bet that American energy demand would return with an economic recovery. The weak U.S. dollar also pushed oil higher since crude contracts are priced in dollars, and a drop in U.S. currency gives investors with foreign money more buying power.

But oil hasn't been able to push past $82 a barrel as U.S. oil consumption dropped well below average for this time of year. With millions of people giving up the morning commute, gasoline demand has plunged.

"I'm glad that it's finally being talked about," trader Stephen Schork said. "We have way too much oil."

Still, Francisco Blanch, head of global commodities research with Bank of America-Merill Lynch, believes that crude prices will continue to march to $100 a barrel by 2011. The weak U.S. dollar will continue to boost oil prices next year, he said, though it's hard to tell how much more the market will bear.

"What we know is at $150 (a barrel last year), the world economy blew up. So it will be somewhere in that range," Blanch said.

In other Nymex trading, heating oil fell 5.41 cents to settle at $2.0035 a gallon. Gasoline for December delivery lost 6.34 cents to settle at $1.9243 a gallon. Natural gas for December delivery plunged 18.7 cents to settle at $4.595 per 1,000 cubic feet.

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Associated Press writers Pablo Gorondi in Budapest, Hungary, Alex Kennedy in Singapore and Christopher S. Rugaber in Washington contributed to this report.