Oil eases on growth concerns and weaker storm

NEW YORK (Reuters) - Oil prices eased on Friday as weak U.S. services sector data revived concerns about slowing economic growth, while a weakened Hurricane Earl posed less of a threat to refineries near its path.

A report that the United States lost fewer jobs than feared in August boosted oil early, but a later report showing tepid growth in the U.S. service sector sent prices lower. Oil bounced to finish well above its session low as traders took defensive positions ahead of a long holiday weekend.

Oil prices ended the week lower for the third time in four weeks.

U.S. crude for October delivery fell 42 cents, or 0.56 percent, to settle at $74.60 a barrel, having traded from $73.20 to $75.44. That settlement left prices down from a week ago, but only by 57 cents.

ICE Brent for October dipped 26 cents, or 0.34 percent, to settle at $76.67 a barrel, after trading from $75.33 to $77.46.

Crude prices began a slump toward session lows after an Institute for Supply Management report showed the U.S. non-manufacturing sector grew an eighth straight month in August, but at a slower pace than July and at a rate below expectations.

“The ISM number let out some of the steam and pulled (crude prices) back,” said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut.

Earlier, crude prices bounced higher after a report showed U.S. employment fell for a third straight month in August, but declined far less than expected and there was an unexpected rise in private sector hiring.

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“Today’s dichotomy between the equity/euro strength and oil price weakness following the employment report relates to increasingly bearish petro fundamentals,” Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois, said in a research note.

The weak ISM data, eased storm concerns and bearish fundamentals were seen helping the oil market shrug off the weak dollar. A weaker greenback usually is supportive to dollar-denominated oil, making it less expensive to consumers using other currencies and lowering the value of the currency being paid to producers.

The U.S. dollar fell against a basket of currencies .DXY and was weaker against the euro. <USD/> But any increased attraction to riskier assets resulting from the less-than-horrid employment report did not accrue to oil.

The broad S&P 500 index closed its best week in eight after recent economic data, including a stronger-than-expected labor market report, bolstered optimism that the economy would not fall back into recession. <USD/>

The strength of equities based on expectations of future economic growth as the recovery progressed has helped bolster oil prices and kept the focus off high U.S. oil inventories, tepid demand <EIA/S> and the global spare production capacity.

Economist Nouriel Roubini told Reuters Insider Television he believed things could get worse in the United States in the second half of the year and economic growth could go below 1 percent.

“Even if it is not technically a double dip recession, it is going to feel like a recession,” said Roubini, who has been nicknamed “Doctor Doom” for his pessimistic forecasts.


Friday’s U.S. data arrived ahead of a long weekend and Monday’s U.S. Labor Day holiday is traditionally considered the end of summer driving-demand season.

Hurricane Earl’s path off the U.S. East Coast posed less of a threat to the region’s oil refineries, but still likely to dampen holiday driving and fuel demand.

Hurricane Earl weakened to a Category 1 storm as it churned up the U.S. eastern seaboard toward Canada and on Friday a refiner in Virginia reported normal operations in the wake of the storm.

On Thursday, the U.S. Energy Information Administration had warned Hurricane Earl could affect 1.1 million barrels per day of U.S. operable refinery capacity on the Atlantic coast, or about 7 percent of the nation’s total.

But even as the storm approached, the EIA and analysts noted that bulging inventories would dull any impact from refinery capacity being shut.

Additional reporting by Gene Ramos in New York, Barbara Lewis in London and Alejandro Barbajosa in Singapore; Editing by David Gregorio