Oil slips to US$68 a barrel on rising European unemployment

Investors were also awaiting the release of a key U.S. employment report for hints on the outlook for the world's largest economy. By midday in Europe, benchmark crude for August delivery was down US$1.35 to US$67.96 a barrel in electronic trading on the New York Mercantile Exchange. On Wednesday, it fell 58 cents to settle at US$69.31.

A rally from below US$35 a barrel in March stalled last month on investor concern that a sluggish global economy may not recover fast enough to justify surging oil prices.

Unemployment in the 16 countries that use the euro spiked to a ten-year high in May, reinforcing concerns about the length of the economic recovery.

The seasonally-adjusted unemployment rate for the euro zone in May stood at 9.5 percent, up from April's 9.3 percent and hitting its highest level since May 1999. The euro slipped to US$1.4079 on Thursday from US$1.4148 late Wednesday in New York, while the British pound was down to US$1.6363 from US$1.6474.

Investors turn to commodities such as oil to hedge against inflation and dollar weakness, but tend to drift back to the U.S. currency when it strengthens.

Traders will be eyeing the Labor Department's June unemployment report, due to be released later Thursday, for signs of improvement in the economy and consumer demand.

The jobless rate hit a 25-year high of 9.4 percent in May, jumping from 8.9 percent the previous month.

Oil will likely trade between US$65 a barrel and US$75 in the July-September period, averaging US$71 in the third quarter and US$76 in the fourth quarter, Barclays Capital said in a report. “We expect the upward momentum in many commodities to slow over the next few quarters, before fresh highs are reached when the cycle becomes expansive,” Barclays said.

Prices were bolstered Wednesday by a weekly report from the Energy Department's Energy Information Administration which showed crude inventories fell more than some expected, losing 3.7 million barrels for the week ended June 26.

Supplies have dropped 15.8 million barrels during the last four weeks, a sign crude demand may be picking up.

In other Nymex trading, gasoline for August delivery fell 3.4 cents to US$1.825 a gallon and heating oil slid 3.08 cents to US$1.7349. Natural gas for August delivery dropped 4.2 cents to US$3.753 per 1,000 cubic feet.

In London, Brent prices fell US$1.15 to US$67.64 a barrel on the ICE Futures exchange.

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