Oil Price Drop (Should) Cut Drivers A Break

Oil prices plunged 10 percent to below $100 a barrel in New York on Thursday — the biggest drop since the 2008 financial crash — after a government report shook market confidence by showing a big jump in layoffs last week.

The collapse in oil prices couldn’t come at a better time for the economy and consumers — just as average gasoline prices were threatening to set records of more than $4 a gallon. The sudden drop is expected to ease pressure on pump prices in coming days.

Triggering the market crash — which affected stocks and commodities, from crude oil to silver and gold — was more evidence of diminished growth in the United States this year, caused in no small part by skyrocketing prices for fuel and food.

Layoffs have been on the rise, prompting a jump in new claims for unemployment benefits last week to an eight-month high of 474,000, the Labor Department reported Thursday.

Although temporary layoffs at Japanese-owned auto factories with parts shortages and other transitory developments likely influenced the number, jobless claims had already been on the rise to more than 400,000 in recent weeks after averaging fewer than 400,000 in the first three months of the year.

Andrew Gledhill, an economist at Moody's Analytics, called the unemployment news “disquieting,” although he and other economists expect jobless claims to fall back to less worrisome levels of fewer than 400,000 in coming weeks.

Moody's expects a report due Friday on April employment trends to show that job growth continued at healthy levels around 200,000 during the month.

Despite the steady job gains, “damage to the labor market over the last several years has been great,” Mr. Gledhill said. “There are 8 million unemployed workers; roughly half have been unemployed for greater than 26 weeks. … The labor market will take several years to recoup the losses suffered during the recession.”

The sobering job news had an explosive effect in commodities markets, where investors and speculators had bid up prices this year betting that more robust growth in the U.S. economy would help to send raw materials prices to record highs.

Premium crude oil prices, which had soared to more than $110 a barrel just in the last week, nose-dived Thursday by more than $10 to below $98.50 in New York trading. Other key commodities including corn, wheat and copper, which have been driving up consumer inflation, joined in the market downdraft.

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