Oil fell on Friday as stalled US job growth in August rekindled worries there will be another recession, which would slow oil and gasoline use, traders said.
Pressure from the jobs data more than offset support from oil companies shutting down nearly half of the production in the Gulf of Mexico ahead of Tropical Storm Lee.
US nonfarm payrolls were unchanged last month, the Labor Department said on Friday. The weakest job reading in a year bucked economists' expectations for a gain of 75,000 jobs.
Stunted growth could weigh on fuel demand, but it may also raise the odds of more quantitative easing (QE) from by the US Fed. That could cheapen borrowing, weaken the dollar, and encourage investment in commodities as an asset class.
"The (jobs) data reinforces our concern that the US economy has stalled, and we think there is a 60% chance it will fall into recession by the end of the year or at the start of next year," said Rachel Ziemba at Roubini Global Economics in London.
"We think QE3 is coming," she said.
By 2:15 pm EDT (1808 GMT), Brent was trading USD 2.46 lower at USD 111.83 a barrel and US crude was down USD 2.90 at USD 86.03.
The August US jobs data will be "likely enough to spur Fed easing action at the September meeting," Goldman Sachs economists wrote in a note on Friday.
The Fed may extend the maturity of its Treasuries holdings after a policy meeting slated for Sept. 20-21, they added.
BRENT-WTI SPREAD WIDENS
The spread between Europe's benchmark crude and US crude surged on Friday to as much as USD 26.98 a barrel, a new record.
European Union governments agreed on Friday to ban imports of oil from Syria, which typically ships 150,000 barrels per day.
The European Union also lifted sanctions on Libyan ports and oil firms, but few expect the country's normal oil production -- around 1.6 million barrels per day -- to be restored soon, after the country's civil war halted oil sector activities this year.
The newly-appointed chairman of Libya's National Oil Corporation expressed optimism this week that full production could be restored within 15 months.
Oil also followed equities markets lower, as the S&P 500 index shed 2.6%, another economic bellwether, fell 0.7% in London. Gold, a perceived safe haven bet, jumped nearly 3% to a 1-1/2 week high.
STORM RISK
Friday's oil losses wiped out part of US crude's 4.1% gain in the week through Thursday, when it had settled at a one-month high, in part due to a tropical storm threat in the US Gulf of Mexico.
Oil companies shut in 666,321 barrels of crude production in the U.S. Gulf of Mexico on Friday, or 48% of the region's output, as they braced for Tropical Storm Lee.
The weather cycle is moving towards Louisiana and has forced wide evacuations of offshore oil platforms.
BP Plc, the largest oil producer in the Gulf, evacuated all personnel from its platforms in the region.
Refiners on the Gulf Coast said they were getting ready for up to 15 inches of rain in the next 48 hours.
"The fact that this storm isn't very supportive (for US crude prices) shows you that the US is well supplied," said Richard Ilczyszyn at MF Global in Chicago.
US crude trading volume was around 436,000 contracts, 36.5% below the 30-day average.
US financial markets will close on Monday for the US Labor Day holiday, although electronic trading will remain active.
