Oil hovers below $87 in Europe as dollar gains

Oil fell further below $87 a barrel Monday as the effects of a stronger dollar trumped news of a jump in new U.S. jobs, which suggests demand for crude is improving.

By early afternoon in Europe, benchmark oil for December delivery was down 31 cents at $86.54 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 36 cents to settle at $86.85 on Friday.

While the Nymex contract climbed as high as $87.49 earlier in the session, it fell back as the firmer dollar made commodities more expensive — and less attractive — for investors holding other currencies.

The euro fell to $1.3901 on Monday from $1.4045 late Friday in New York, while the British pound was down to $1.6124 from $1.6189.

"As soon as the euphoria about the labor market data eases and gives way to a more realistic view of things, the inverse relationship between oil prices and the external value of the U.S. dollar will have an impact again," said analysts at Commerzbank in Frankfurt.

Gains in the oil price last week stemmed from the U.S. Federal Reserve's decision to sink $600 billion into buying Treasurys over the next eight months to stimulate the sluggish economy by lowering long-term interest rates.

There was encouraging news on the economic front, as the Labor Department reported that employers added 151,000 jobs in October, the first net gain in five months. The unemployment rate remained at 9.6 percent.

The jobs report could signal more improvement in the economy, which could lead to stronger demand from consumers and businesses for fuel. In the short-term, however, improved economic indicators could strengthen the dollar and dampen enthusiasm for oil.

In Nymex trading in December contracts, heating oil was down 0.81 cent at $2.3767 a gallon, gasoline fell 0.90 cent to $2.1710 a gallon and natural gas gained 5.1 cents to $3.988 per 1,000 cubic feet.

In London, Brent crude lost 40 cents to $87.71 a barrel on the ICE Futures exchange.