October 7, 2010 / 3:06 AM / 9 years ago

Oil ends down, profit-taking before U.S. payrolls

NEW YORK (Reuters) - Oil prices fell nearly 2 percent on Thursday in a pullback from five-month highs above $84 as a recovery by the dollar prompted commodities investors to book profits ahead of a crucial U.S. jobs report.

Weaker U.S. equities, a gauge of future energy demand, also weighed on oil.

U.S. crude for November delivery settled $1.56 lower, or 1.87 percent, at $81.67 a barrel, after hitting a session peak of $84.43, its highest since May 4.

ICE Brent in London ended down $1.63, or 1.92 percent, to $83.43 a barrel, having hit $86.02, also the highest since May 4.

“Crude futures prices are coming back down to earth in a delayed reaction to the bearish government report of a large build in crude inventories last week,” Phil Flynn, analyst at PFGBest Research in Chicago, said.

“Oil investors have also turned cautious and are booking profits ahead of Friday’s key employment data, should the report turn out to be bearish,” Flynn said.

September U.S. nonfarm payroll numbers are due on Friday morning, with analysts polled by Reuters forecasting an unchanged level after employers shed 54,000 jobs in August.

There is a risk that employment declined after an independent report on Wednesday showed private employers unexpectedly cut jobs by 39,000 in September.

Oil rose earlier as the dollar weakened against the euro on prospects that the U.S. Federal Reserve would launch a new round of monetary easing to jump-start a sluggish economy.

But the euro surrendered gains as investors said the European single currency had risen too far, too fast. <USD/>.

A cheaper dollar usually boosts crude because it makes dollar-denominated oil less expensive for consumers using other currencies and reduces the value of dollars paid to producers.

“As far as the oil complex is concerned, we are viewing today’s sharp decline as corrective and a natural reaction to a dramatic one-week price up-spike that simply became overcooked,” said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

Data showing new U.S. claims for unemployment benefits fell to a near three-month low last week did not alter the view that the Fed would soon launch a new asset-purchasing program.

RALLY ENDING?

The oil rally may be close to running its course for now, according to some technical indicators. U.S. crude’s relative strength index (RSI) is at 72, in overbought territory, which can indicate a pullback is coming.

“Many sectors are overbought, and so the upside response is looking more sluggish, but we think the more likely variable has to do with nervousness ahead of the non-farm payroll number,” MF Global analyst Edward Meir said in a report.

Meanwhile, operations at the key French oil port of Fos Lavera, which serves eight refineries in France, Switzerland and Germany, remained suspended as a strike went into its 11th day.

The dispute has blocked oil tankers, forced some refineries to reduce operations and driven up fuel prices in Europe — supporting the wider oil market.

Cash gasoline at New York Harbor has risen on concerns that the strike could affect imports of European gasoline, which makes up a sizable portion of northeastern U.S. supplies.

Oil prices rose on Wednesday after a U.S. government report showed inventories of gasoline and distillates fell more than expected in the world’s top consumer. Crude stockpiles rose much higher than forecast.

Additional reporting by Robert Gibbons in New York, Alex Lawler in London; Alejandro Barbajosa in Singapore; Graphic by David Turner; Editing by Marguerita Choy

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