An unprecedented spike in crude oil prices followed the release of a dour unemployment report Friday, sending the stock market to its worst losses in months.
By the end of the day, hopes that the economy’s slowdown was nearly over had been left behind. And consumers who had seen a small break in gasoline prices again were facing the prospect of $4-a-gallon prices at the pump.
The jobs report for May from the Labor Department was filled with grim numbers, starting with a 5.5 percent unemployment rate, up from 5 percent. That was the biggest one-month rise since 1986 and put the unemployment rate at its highest since October 2004.
Employers also had eliminated 49,000 jobs in May, the fifth straight month of losses.
With multiple worries to choose from, Wall Street flinched principally because of oil’s surge. There was less concern about the jump in unemployment, though both reinforced worries about economic weakness.
“It appears to be oil-induced rather than that jobs number,” Ken Powell, chief equity strategist at Overland Park-based Mariner Wealth Advisors LLC, said of Friday’s drop.
The Dow Jones industrial average gave up 3.1 percent of its value, erasing more than the 214 points it had gained Thursday. Its loss of 394.64 points was the biggest in more than a year and left the blue-chip stock index at 12,209.81, the lowest since the end of March.
The oil price spike, sparked by comments that Iran might be attacked by Israel, pushed crude oil futures to a record close Friday of $138.54 a barrel, up $10.75.
The price was up more than $11 at one point during trading on the New York Mercantile Exchange. A barrel of oil cost less than $11 less than a decade ago, in late 1998.
Gasoline prices had retreated a few cents in recent days, with AAA noting that the national average retail price for gasoline dropped Thursday for the first time in a month.
But Friday’s big jump in oil prices, which followed a smaller rise the previous day, will put a stop to that. Wholesale gasoline prices, which had declined earlier in the week, jumped nationwide. In the Midwest, wholesale prices were up about 20 cents a gallon Friday.
“This is all we needed to put fuel on the fire,” said Mike Right, a spokesman for AAA in Missouri.
Oil prices were relentless Friday. They started early up about $5 for a barrel of West Texas Intermediate oil, the U.S. benchmark, and gathered strength through the day.
The move was triggered by stern talk from Israel officials that Iran’s nuclear program, which Israel and the West believe exists to build nuclear weapons, could not be allowed to continue.
Israel’s prime minister, Ehud Olmert, was quoted Friday saying that Israel would attack Iran if it did not abandon its nuclear program. He was in Washington this week and said his discussions with President Bush were dominated by Iran.
There is precedent for Israeli military action. In 1981, Israeli planes destroyed an unfinished Iraqi nuclear reactor. Iran has denied that its nuclear program is meant to produce weapons. Last year Israel bombed a suspected nuclear reactor in Syria.
A conflict that involved Iran would quickly be felt by the oil market. Iran is the second-largest producer in the Organization of the Petroleum Exporting Countries and the fourth-largest exporter of oil in the world, according to the Energy Information Administration.
Iran produces 3.8 million barrels per day of crude oil, and there is only enough surplus oil production in the world to replace just over half that amount. A disruption of Iran’s oil exports clearly would be serious, said market observers.
But there were also suspicions that those concerns were overplayed by speculation that fed on itself as prices rose during the day. That fervor increased when a Morgan Stanley analyst predicted that oil could reach $150 a barrel by the Fourth of July.
“There is clearly a herd mentality with a lot of this stuff,” said James William, an analyst with WTRG Economics.
Critics said that noncommercial traders who trade financial instruments based on crude oil need to be reined in. Judy Dugan, of ConsumerWatchdog.org in Santa Monica, Calif., said it was time for the federal government to get the speculation under control.
The Commodity Futures Trading Commission is investigating allegations that speculators have caused much of the increase in oil prices. Bart Chilton, the commission’s chairman, in a letter released Friday, said he hoped that “some positive action can be taken in the not too distant future.”
Chilton, however, is being criticized by several U.S. senators for failing to respond to calls to investigate potential abuses that may also be occurring on foreign exchanges that are dealing in U.S. delivered oil. That criticism was stepped up Friday.
“On a day when the price of oil rises by more than $10 to a new record high, there can’t be a more important time to ensure that the playing field is level,” said Sen. Olympia Snowe, a Maine Republican.
The turmoil in the oil and fuel markets is a stark contrast with earlier this week, when some market observers hoped that prices would continue to ease up.
The federal government released data that consumer demand was down 1.4 percent in the last month and gasoline production had risen, which helped cause a decline in wholesale gas prices.
Area motorists also had dodged a potential price spike after a fire at a major fuel terminal in Kansas City, Kan., this week. However, the terminal was able to quickly restart wholesale fuel deliveries, and by Thursday also had its pipeline running at full capacity to the Kansas City market and markets farther north.
Now there are other, larger worries affecting consumers worldwide. A calmer view of the potential for a Mideast conflict could cause oil prices to ease next week. But at least one analyst in Kansas City, on the heels of the record one-day spike in oil prices, was leery of making predictions about markets that reminded him of a madcap comedy troupe.
“We think Monty Python is running amok,” said Lewis Adam, president of Admo Energy, which helps businesses including fuel retailers manage energy costs.