NEW YORK, Sept 2 Oil fell on Friday as stalled U.S. job growth in August rekindled worries of another will be recession, which would slow fuel demand.
Pressure from the jobs data more than offset support from oil companies shutting down nearly half of the crude production in the U.S. Gulf of Mexico ahead of Tropical Storm Lee.
U.S. nonfarm payrolls were unchanged last month, the Labor Department said on Friday. The weakest job reading in a year bucked economists' expectations for a gain of 75,000 jobs.
Brent fell by $1.96 a barrel to settle at $112.33.
U.S. crude was down $2.90 at $86.03. U.S. crude fell $2.48 a barrel to settle at $86.45 a barrel, in trading volume around 37 percent below the 30-day average.
U.S. financial markets will close on Monday for Labor Day, although electronic trading will remain active.
Stunted jobs growth would weigh on fuel demand, but it may also raise the odds of more quantitative easing (QE) from by the U.S. Federal Reserve. That could cheapen borrowing, weaken the dollar, and encourage investment in commodities as an asset class.
"The (jobs) data reinforces our concern that the U.S. economy has stalled, and we think there is a 60 percent chance it will fall into recession by the end of the year or at the start of next year," said Rachel Ziemba at Roubini Global Economics in London.
"We think QE3 is coming," she said.
The August U.S. jobs data will be "likely enough to spur Fed easing action at the September meeting," Goldman Sachs economists wrote in a note.
The Fed may extend the maturity of its Treasuries holdings after a policy meeting slated for Sept. 20-21, they added.
BRENT-WTI SPREAD WIDENS
The spread between Europe's benchmark crude and U.S. crude surged to as much as $26.98 a barrel, a new record.
European Union governments agreed to ban imports of oil from Syria, which typically ships 150,000 barrels per day.
The EU also lifted sanctions on Libyan ports and oil firms, but few expect the country's normal oil production -- around 1.6 million bpd -- to be restored soon, after a civil war halted its oil sector this year.
The newly-appointed chairman of Libya's National Oil Corporation expressed optimism this week that full production could be restored within 15 months.
Oil also followed equities markets lower, as the S&P 500 index shed 2.5 percent. Copper, another economic bellwether, fell 0.6 percent in London. Gold, a perceived safe haven bet, jumped nearly 3 percent to a 1-1/2 week high.
Friday's oil losses wiped out part of U.S. crude's 4.1 percent gain in the week through Thursday, when it had settled at a one-month high, in part due to a tropical storm threat in the U.S. Gulf of Mexico.
Oil companies shut in 666,321 barrels of crude production in the U.S. Gulf of Mexico on Friday, or 48 percent of the region's output, as they braced for Tropical Storm Lee.
The weather cycle is moving towards Louisiana and has forced wide evacuations of offshore oil platforms.
BP Plc, the largest oil producer in the Gulf, evacuated all personnel from its platforms in the region.
Refiners on the Gulf Coast said they were getting ready for up to 15 inches (38 cm) of rain in the next 48 hours.
"The fact that this storm isn't very supportive (for U.S. crude prices) shows you that the U.S. is well supplied," said Richard Ilczyszyn at MF Global in Chicago.
Speculators hiked their bets on rising U.S. crude oil prices in the week to Aug. 30, raising their net longs futures and options positions by the largest percentage amount since June, the U.S. Commodity Futures Trading Commission said.
Hedge funds and other large investors increased their net longs on the New York Mercantile Exchange by 18,422 or 12 percent to 161,617.
(Additional reporting by Robert Gibbons, Gene Ramos, Janet McGurty and David Sheppard in New York, and Barbara Lewis and Ikuko Kurahone in London; Editing by Marguerita Choy)