Oil drops below $100 ahead of key U.S. jobs report

Oil prices dropped below $100 a barrel Friday as investors awaited a key U.S. jobs report to get a signal about the state of the economic recovery in the world's largest economy.

By early afternoon in Europe, benchmark oil for July delivery was down 67 cents at $99.73 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 11 cents to settle at $100.40 on Thursday.

In London, Brent crude for July delivery was down 96 cents to $114.58 a barrel on the ICE Futures exchange.

Crude has fallen from $115 on May 2 amid signs U.S. economic growth this year could be weaker than previously anticipated. On Thursday, the Energy Information Administration said demand for petroleum products dropped last week for the fourth week in a row.

Traders will be closely watching the Labor Department's May nonfarm payrolls data, which are scheduled to be released later.

Expectations for those payroll numbers were lowered sharply Wednesday by the news from the ADP payrolls firm that private employers in the U.S. only added 38,000 jobs during the month, reinforcing fears that the U.S. economic recovery is quickly running out of steam.

As a result, analysts have reduced their expectations for the government data, and now expect around 165,000 jobs, both public and private, to have been added during May. Before the ADP data, the markets were expecting a 200,000 improvement in May, slightly down on April's 244,000 increase.

"Given the past month's pattern of economic releases that have fallen short of average industry expectations, any surprises (on the jobs data) are apt to fall toward the bearish side," Ritterbusch and Associates said in a report. "A negative number could easily trigger another sharp sell-off."

Next week's OPEC meeting in Vienna is also coming into focus.

"For the first time in quite a long while, an increase in production quotas is not ruled out," said analysts at Commerzbank in Frankfurt. "Although the quotas will not change officially in our opinion, OPEC is signaling its willingness to expand production."

In other Nymex trading in July contracts, heating oil fell 2.72 cents at $3.0167 a gallon and gasoline dropped 1.34 cents to $2.9543 a gallon. Natural gas futures lost 4.5 cents to $4.749 per 1,000 cubic feet.