Oil falls below $82 on jobs report

Oil prices fell below $82 a barrel Friday ahead of a key employment report that will help investors gauge the strength of the U.S. economy.

By early afternoon in Europe, benchmark crude for September delivery was down 20 cents to $81.81 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 46 cents to settle at $82.01 on Thursday.

Analysts expect the Labor Department to say private employers hired 90,000 workers in July, a slight increase from the 83,000 hired in June. But the unemployment rate will likely rise to 9.6 percent from 9.5 percent because of government layoffs tied to cutting temporary census jobs.

"Oil prices may be subject to push-pull in investment sentiment -- support from some as a hedge against inflation and pressure from remaining concerns over the prospects of slow economic growth," said an energy report from Sucden Financial in London.

Traders will be closely watching how stock and currency markets react to the jobs data as signs of overall investor sentiment. Most European stock markets were higher Friday and the euro was down slightly at $1.3163 from $1.3179 late Thursday in New York.

"Oil prices are still in position to advance if we get strong moves higher in the euro or in equities as a result of a bullish employment report," Cameron Hanover said in a report.

At the same time, analysts said ample stocks of crude oil could dampen the effects of the commodity's use as a financial tool.

"Oil inventories are expected to remain quite high over the second half of the year which would mitigate any strong upward price pressures resulting from bullish futures markets," said a report from KBC in Britain.

In other Nymex trading in September contracts, heating oil fell 0.79 cent to $2.1789 a gallon, gasoline lost 0.75 cent to $2.1569 a gallon and natural gas dropped 0.3 cent to 4.595 per 1,000 cubic feet.

In London, Brent crude was down 50 cents to $81.11 a barrel on the ICE Futures exchange.