Oil prices slide on weak US jobs report

Oil prices sank under $US67 dollars a barrel on Thursday after weak jobs data quashed hopes of a speedy economic recovery in the United States, which is the world's top energy consumer.

New York's main contract, light sweet crude for August delivery fell $US2.58 from Wednesday's closing price to $US66.73 per barrel, after earlier touching $US66.54.

London Brent North Sea crude for delivery in August dropped $US2.14 to $US66.65 a barrel.

Prices slumped after a US government report said job losses surged to 467,000 in June, pushing the unemployment rate to a new 26-year high of 9.5 per cent, dampening hopes for an early recovery from recession.

Analysts had expected a smaller June number of 365,000 job losses, but a higher unemployment rate of 9.6 per cent. The jobless rate in May was 9.4 per cent.

"The market's expectations for the job losses were over-optimistic," said Andy Lipow of Lipow Oil Associates. "It signals it's going to take much longer for the economy to come out of recession and it's going to temper demand."

He said prices could weaken further if stockpiles did not ease.

"Inventories are so much higher than this time last year - not only crude but also gasoline (petrol) and distillates," he said.

"Clearly if those continue to build we're going to see further pressure on prices."

The latest US Labour Department report, seen as one of the best indicators of economic momentum, also caused the dollar to rise against the euro and yen as traders returned to the safe-haven currency.

A stronger greenback makes dollar-priced oil more expensive for buyers armed with weaker currencies. In turn, this tends to dampen demand and pull the crude market lower.

The downward momentum was extended after falls a day earlier on data revealing a drop in US inventories of petroleum products.

The US Department of Energy said in its weekly report that American crude oil reserves tumbled 3.7 million barrels in the week ending June 26, the fourth weekly drop in a row.

But the department also reported growing domestic inventories of key refined products petrol and distillates.

Petrol or petrol stocks rose 2.3 million barrels, and distillates, which include diesel and heating duel, increased by 2.9 million barrels last week.

"How can you have prices rise when demand is so bad?" asked Phil Flynn of Alaron Trading.

Meanwhile, rating agency Moody's said its outlook for the global integrated oil industry was negative as the economic recovery in 2010 was expected to be "slow and painful", crimping worldwide oil and gas demand when inventories were near record highs.

Overall, gross cash flow for the integrated oil companies will fall about 40 per cent to $US180 billion ($A222.4 billion) in 2009 and will remain at lower levels in 2010, amid declining prices for oil and gas, Moody's said.

"The negative outlook reflects our view that prices for crude oil and natural gas could turn lower, squeezing margins and causing cash flow for integrated oil companies to fall by more than a third in the year ahead," said Moody's senior vice president Thomas Coleman.