NEW YORK - Oil futures retreated further from their record levels above US$100 a barrel Friday after the U.S. government reported lower-than-expected job growth in December, adding to fears of a recession that could crimp demand for oil. U.S. gas prices, meanwhile, rose 2.2 cents a gallon overnight, following crude's recent rally.
The Labor Department said U.S. employers created just 18,000 jobs last month, far less than the 70,000 analysts expected and the smallest increase since August 2003. The government also said the unemployment rate jumped to five per cent in December from 4.7 per cent in November, more than the 4.8 per cent analysts expected and the highest level since November 2005.
While energy traders could have interpreted that data positively -- in the past energy investors have seen reasons to buy in any economic news likely to prompt the Federal Reserve to cut interest rates -- traders are becoming more concerned that record high energy prices are helping to push the economy into recession.
Light, sweet crude for February delivery fell $1.27 to settle at $97.91 a barrel on the New York Mercantile Exchange Friday.
U.S. gas prices, meanwhile, jumped overnight to a national average of $3.074 a gallon, according to AAA and the Oil Price Information Service. Gas prices have risen in recent weeks, following oil's rise into record territory. Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service, said gas prices are likely to add another five cents over the next week or so, but will likely then slide as demand ebbs in January and February.
Indeed, the Energy Information Administration on Thursday reported that gasoline demand rose a tepid 0.1 per cent over the last four weeks.
"It's just a terrible time of the year for demand,'' Kloza said.
But in the spring, when demand picks up and refiners start cranking out gasoline to meet expected strong summer driving demand, gas prices will likely rebound and could set new records. The EIA predicts gas prices will peak over $3.40 a gallon this spring, well above the record price of $3.227 set last May.
In Canada, where retail pricing is considerably different because of taxes, currency fluctuations and other factors, a litre of gasoline cost about 107.776 cents Cdn on average on Friday -- up from about 107.44 cents on Thursday, according to Gasbuddy.com, which compiles figures submitted by volunteer spotters
Of course, while demand is a factor in the cost of gasoline, much of the price Americans pay at the pump is based on the price of crude oil. In recent months, oil prices have often moved higher after the government reported dismal economic data because traders believe signs of economic weakness raise the chances that the Fed will cut interest rates. Lower interest rates also weaken the dollar, whose decline has contributed to more expensive oil.
"Oil is in a Federal Reserve induced oil bubble,'' said Phil Flynn, an analyst at Alaron Trading Corp., of Chicago, in a research note. "The Fed's response to the housing crisis been essentially to aggressively cut rates but that has come at the expense of the dollar and has fed directly in to commodity price inflation.''
But traders will only stick with that investment strategy for so long. A recession is seen as much more important to long-term energy prices than the easy money that is a byproduct of lower interest rates, Kloza said. Reflecting this, oil prices reacted little Friday afternoon to the Federal Reserve's plans to increase the amount of money available to banks under the auction process it created to try to ease the credit shortage.
Other energy futures also fell Friday. February heating oil futures fell 3.56 cents to settle at $2.6835 a gallon on the Nymex while February gasoline futures dropped 3.04 cents to settle at $2.511 a gallon.
February natural gas futures rose 16.7 cents to settle at $7.841 per 1,000 cubic feet on the Nymex. Investors shrugged off a government report Friday that natural gas supplies fell by 87 billion cubic feet last week, much less than the 106 billion cubic feet expected by analysts surveyed by Dow Jones Newswires.
In London, Brent crude fell 81 cents Friday to settle at $96.79 a barrel on the ICE Futures exchange.
