Oil dips as weak global economy offsets rise in U.S. jobs

A gas pump is seen hanging from the ceiling at a petrol station in Seoul June 27, 2011. South Korea, as a member of the 28-nation IEA, will release 3.46 million barrels oil stocks over 30 days after a meeting with local refiners later on Monday.

NEW YORK (Reuters) - Oil prices fell in volatile trading on Friday and posted weekly losses as a fragile global economy and uncertainty about Europe's debt crisis offset support from a better-than-expected U.S. employment report.

While U.S. crude retreated 2 percent, North Sea cargo delays and sensitivity to threats of disruptions to Middle East supply limited Brent crude futures' losses and pushed Brent's premium to U.S. crude to its highest since October 2011.

The U.S. unemployment rate unexpectedly fell to 7.8 percent in September, its lowest level since January 2009 and against economist expectations it would rise, Labor Department figures showed.

The report showed nonfarm payrolls rose by 114,000 last month, just above expectations and up from 96,000 added in August. Some analysts and brokers expressed skepticism about the data, which could help President Barack Obama's reelection bid.

The jobs snapshot added to supportive U.S. reports on private-sector job gains and manufacturing released this week, but the numbers have not been enough to counter a more gloomy manufacturing and service-sector picture in Europe and China.

"I don't really believe the jobs data, many oil traders don't, and there is a feeling that if prices get too high the SPR (Strategic Petroleum Reserve) will be released before the election," said Richard Ilczyszyn, chief market strategist and founder of iitrader.com in Chicago.

Ilczyszyn added that the oil market is well supplied and that the strong refined products futures market has been lifted by refinery and supply issues.

Addressing doubts about the validity of the latest unemployment figures, U.S. Labor Secretary Hilda Solis said on CNBC television that the idea that the report was manipulated is "ludicrous.

Brent and U.S. crude shot up 4 percent on Thursday, but the rally only offset a slide of similar percentages the previous session.

Brent November crude fell 56 cents to settle at $112.02 a barrel on Friday, recovering after falling to $110.54. For the week, Brent slipped 37 cents, or 0.33 percent.

Brent fell back below the 50-day moving average of $112.38 and the 200-day moving average of $112.12, technical levels closely monitored by chart-watching traders.

U.S. November crude fell $1.83 to settle at $89.88, back below the 100-day moving average of $89.91, and having dropped as low as $89.01.

Brent's premium to U.S. crude increased to $22.14 based on settlements.

U.S. RBOB gasoline futures managed a nearly penny gain on Friday, settling at $2.9525 a gallon, up 0.96 cent. U.S. heating oil, the benchmark distillate futures contract, fell 3.25 cents to settle at $3.1559 a gallon.

The S&P 500 index eased from five-year highs reached after the strong jobs report, as traders took profits ahead of corporate earnings reports start arriving next week. .N

MIDDLE EAST TURMOIL

Crude oil prices have received support, or have had losses limited, by fears about potential threats to supply, especially in the Middle East as the Syrian civil conflict drags on and Iran continues to quarrel with the West.

Turkish Prime Minister Tayyip Erdogan said on Friday his country was "not interested in war (with Syria), but not far from it either" following cross-border attacks this week.

Erdogan's speech highlighted the danger that the uprising against Syria's president, Bashar al-Asaad, will drag in its neighbors.

(Additional reporting by Alice Baghdjian in London and Ramya Venugopal in Singapore; Editing by Dale Hudson ; Editing by Alden Bentley)