By Christian Schmollinger and Ben Sharples Oct. 2 (Bloomberg) -- Oil fell in New York, paring this week’s gain, on signs the U.S. economy is still in the midst of a recession, limiting fuel demand in the world’s biggest crude consumer. Oil snapped two days of increases after the number of Americans filing first-time claims for unemployment benefits climbed and a report showed manufacturing dropped lower than projected by economists. U.S. fuel demand, in terms of products supplied over the past four weeks, fell for a third week, the Energy Department said Sept. 30. “The fundamental picture is not that great,” said Clarence Chu, a trader with options dealers Hudson Capital Energy in Singapore. “The numbers don’t show that we’re on the way up yet so demand will be lagging.” Crude oil for November delivery dropped as much as 72 cents, or 1 percent, to $70.10 a barrel in electronic trading on the New York Mercantile Exchange, and was at $70.18 at 1:26 p.m. Singapore time. Yesterday, the contract rose 21 cents to settle at $70.82. Prices are set to rise 6.4 percent this week. Prices also fell as the dollar rose to a three-week high against the euro. The U.S. currency climbed to as high as $1.4512 per euro, the strongest since Sept. 10, from $1.4545 in New York yesterday. A stronger dollar limits investors’ need for commodities and assets to hedge against inflation. “Commodities overall took a hit from that negative turn in macro sentiment, combined with the advancing dollar,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney. “Going forward, the market is going to be looking at the employment numbers tonight.” Job Losses The U.S. Labor Department will probably show U.S. employers shed 175,000 jobs in September after a reduction of 216,000 in August, according to a forecast of economists surveyed by Bloomberg News. The payroll report is due today in Washington. The number of Americans filing first-time claims for jobless benefits rose by 17,000 to 551,000 last week, more than forecast, the Labor Department said, a sign companies are still cutting workers as the economy pulls out of the recession. The Tempe, Arizona-based Institute of Supply Management’s factory gauge decreased to 52.6 from 52.9 in August, lower than the reading of 54 projected by economists in a Bloomberg survey. Fifty is the dividing line between expansion and contraction. The amount of petroleum products supplies by refiners averaged 19 million barrels a day over the past four weeks, down 201,000 barrels, the Energy Department said on Sept. 30. Gasoline deliveries fell to 9.05 million during the period, the lowest since May 8. OPEC, Crack Spreads U.S. refiners may fail to meet financial requirements of their credit agreements later this year as slumping fuel demand erodes the profitability of making gasoline and diesel. Independent refiners are being pushed to the brink of violating performance covenants of their loans, said Scott Van Bergh at Bank of America Merrill Lynch in New York. The so-called crack spread for gasoline, or the price difference between crude oil and the motor fuel, has fallen 80 percent since Aug. 17 to $2.99 a barrel today. The spread for heating oil has declined 40 percent over the same period to $5.94 a barrel today. “The gasoline crack is pretty much done,” said Hudson Capital’s Chu. “Heating oil is pretty well supplied so without a cold winter I don’t see it really rallying.” The Organization of Petroleum Exporting Countries trimmed production for a second consecutive month in September, as some members moved closer to production targets agreed to last year, a Bloomberg News survey showed. Production averaged 28.395 million barrels a day last month, down 50,000 barrels from August, led by declines by Iraq, Saudi Arabia and Angola, according to the survey of oil companies, producers and analysts. Brent crude oil for November settlement dropped as much as 69 cents, or 1 percent, to $68.50 a barrel on the London-based ICE Futures Europe exchange. It was at $68.68 a barrel at 1:26 p.m. Singapore time. Yesterday, the contract rose 12 cents to settle at $69.19.

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