Oil prices plunged as bleak reports on U.S. job growth and manufacturing heightened worries about a slowing global economy.
Benchmark oil fell $3.49 to $83.04 per barrel Friday in New York after earlier dropping to $82.56 per barrel. The 3.7 percent drop adds to a 17 percent decline in May. Brent crude lost $3.49, or 3.4 percent, to $98.32 per barrel, its lowest price since February 2011.
The reports on jobs and manufacturing are the latest signals that the U.S. economy is growing more slowly. At the same time, Europe is embedded in a financial crisis and China’s government is working to prevent economic growth there from slowing too quickly. That’s led to rising concerns that oil demand may weaken in the months ahead.
U.S. employers added 69,000 jobs in May, the government said, which is the smallest number in a year and far short of the 158,000 new jobs expected by economists. The unemployment rate rose to 8.2 percent from 8.1 percent in April.
Michael Lynch, president of Strategic Energy & Economic Research, said that the U.S. jobs report will do little to improve shaky consumer confidence. “This suggests that we’re going to have a very poor summer for gasoline demand,” he said.
Cheaper oil means cheaper gasoline. The national average is now $3.61 per gallon, 33 cents below their April peak of $3.94, according to AAA, Wright Express and the Oil Price Information Service. Analysts forecast that gas could drop to $3.40 before Labor Day.
That would mean a few more bucks in the pockets of consumers, including those who purchased an estimated 1.4 million cars and trucks in May. Auto sales remain a bright spot in the U.S. economy. Still, those sales won’t significantly boost gas demand because the new models are more fuel efficient than older models heading to the scrap heap.
Energy futures fell across the board, as did global stock markets. Heating oil fell 7 cents to $2.64 per gallon, gasoline futures fell 7 cents to $2.65 per gallon and natural gas dropped 9 cents to $2.33 per 1,000 cubic feet. The S&P 500 stock index and the Dow Jones industrial average were down about 2 percent at midday. Markets in Europe fell 2 percent or more. Markets in Asia showed smaller declines.
Economic news from China and Europe contributed to oil’s plunge Two new surveys show that manufacturing slowed in May in China, which is a huge importer of oil and other commodities. Some analysts said the surveys suggest China’s economic growth will fall below 8 percent in the second quarter which could curb the need for imports. The U.S. and China are the world’s two biggest consumers of oil.
Meanwhile, unemployment across the 17 countries that use the euro remained at 11 percent in April, which was the highest level since the single currency was introduced back in 1999, according to a new report.
Leaders in the European Union continue to search for solutions to a massive debt crisis that has forced Greece and other countries to seek bailout funding. A big moment will come later this month when Greece holds an election that could result in its departure from the euro union.
Also in the U.S., the Institute for Supply Management, a trade group of purchasing managers, says its index of manufacturing activity fell to 53.5 in May from 54.8 in April. A reading above 50 indicates expansion.