NEW YORK (AP) -- Oil prices sank to a five-month low Friday as a jump in the U.S. unemployment rate signaled to traders that Americans might keep paring back their energy use to save money.
The Labor Department said the economy lost jobs in August for the eighth consecutive month - and at a faster-than-expected pace. The unemployment rate spiked to 6.1 percent from 5.7 percent in July, above the 5.8 percent rate that analysts forecast.
"There's been a terrific amount of growing concern about the outlook for demand globally," said John Kilduff, senior vice president of risk management at MF Global LLC. "Today's employment report emboldened that concern."
Light, sweet crude for October delivery fell $1.66 to settle at $106.23 a barrel on the New York Mercantile Exchange - its lowest settlement since early April. During the session, it fell as low as $105.13.
Since surging to a record $147.27 a barrel on July 11, crude has tumbled by over $40, or more than 27 percent.
What could possibly stanch the drop is a cutback in production. Investors are waiting to see if OPEC decides to restrict oil output at its meeting next week in Vienna in response to the two-month plunge in prices. The Organization of the Petroleum Exporting Countries has indicated it may take action to defend the $100-a-barrel level for crude.
But with the dollar on the rebound, many analysts say even a production cutback could prove ineffectual in boosting oil prices.
The dollar weakened modestly against the euro and pound on Friday after the employment report, but rose against the yen. The dollar's recent comeback has helped accelerate oil's price decline. Commodities were bought by many funds to hedge against inflation and weakness in the U.S. currency, so when the dollar rebounded, funds unwound those hedges, thereby driving commodities prices lower.
The jump in the dollar and the decline in oil has also been driven by signs of economic weakness in developing countries around the world - particularly those in Western Europe.
"It's sort of a race to the bottom among the leading economies - Europe is ahead at the moment. That's pumping up the dollar, or making the dollar economy seem much less worse," Kilduff said.
Heating oil futures fell 4.09 cents to settle at $2.9828 a gallon on the Nymex, where gasoline prices dropped 5.43 cents to $2.6861 a gallon. Natural gas for October delivery rose 12.7 cents to $7.449 per 1,000 cubic feet.
In London, October Brent crude fell $2.21 to settle at $104.09 a barrel on the ICE Futures exchange.
In addition to economic indicators and OPEC, traders are keeping an eye on storms developing in the Atlantic. Forecasters do not expect Hanna, Ike or Josephine to head for key oil facilities in the Gulf of Mexico, but the hurricane season is not officially over until the end of November.
The Energy Department's weekly U.S. oil inventory report released Thursday showed a decline in gasoline inventories last week that was smaller than expected. But the report also showed surprising drops in stockpiles of crude and distillates, which include diesel fuel and heating oil; analysts had expected increases.
U.S. gasoline demand has been hovering about 1.6 percent to 3.1 percent lower than a year ago, but demand for distillates is still higher than a year ago, according to Peter Beutel, head of the energy risk management firm Cameron Hanover.
Meanwhile, distillate imports are at their lowest level in years, he wrote in his research note.
"If any rally gets going, distillate is likely to lead it," Beutel wrote.
The average U.S. retail price of a gallon of gasoline was at $3.674, down marginally from Thursday and down more than 10 percent from the July 17 record high of $4.114 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express.