Oil Drops Below $40 on Dismal Jobs Report

Elsewhere, investors also are keeping a wary eye on China and other developing countries for signs of how far the global recession has spread. Chinese factories were expected to continue to pump up oil demand, but experts are no longer betting on this.

Recent reports from the Chinese government say 20 million people have been thrown out of work, and experts now believe that the country's once-burgeoning economy has stalled.

Oil traders also are watching for possible further production cuts by the Organization of Petroleum Exporting Countries, which has already promised to reduce output by 4.2 million barrels since September.

OPEC leaders have said they may reduce supplies again at the group's next meeting in March.

"I think they'll try to talk the market up rather than actually cut again," said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. "They still need to sell their oil to get revenue."

Oil prices won't likely fall much below $40 a barrel and should trade in the $50s by the end of the year, Rigby said.

"In second half, the economy should be turning around, and once we see that, commodities should start to improve," Rigby said.

In other Nymex trading, gasoline futures fell 3.14 cents to $1.2434 a gallon. Heating oil dropped 3.61 cents to $1.3311 a gallon, while natural gas for March delivery rose 2.5 cents to $4.667 per 1,000 cubic feet.

In London, the March Brent contract gave up $1.11 at $45.35 on the ICE Futures exchange.