Oil hits 7-week low in record volume trade

NEW YORK (Reuters) - Oil slid 2.7 percent on Friday to $71 a barrel in record daily trading volumes for the front month crude contract, which extended losses in the biggest three-day percentage loss since September.

U.S. crude oil for March delivery settled down $1.95 at a seven-week low of $71.19 per barrel, after earlier hitting a session low of $69.50. U.S. crude on Thursday closed down 5 percent.

London ICE Brent for March settled at $69.59 a barrel, down $2.54.

Friday's session, in which trading volume hit a record of 540,000 positions, ended the fourth week in a row of oil price declines as demand concerns in the United States, the world's top oil consumer, pressured prices.

Investors fled from risk on Friday and pressured commodities, with gold dropping to a fresh three-month low and other metals also down sharply.

The dollar index, a measure of the greenback's performance against six major currencies, jumped as concern deepened about fiscal problems in south European countries and investors exited riskier plays.

"The dollar remains the focal point for both the equity and commodity markets as Greece's debt issues put pressure on the Eurozone," said Chris Jarvis, senior analyst at Caprock Risk Management in Hampton Falls, New Hampshire.

Additional pressure followed U.S. jobs data, which showed U.S. employers unexpectedly cut 20,000 in January, even as the unemployment rate fell to a five-month low of 9.7 percent.

"Today's U.S. jobs report for the month of January provided a significant surprise to the downside, with a drop in the number of U.S. jobs in January by 20,000," said Jason Schenker, president, Prestige Economics, LLC, Austin, Texas.

Crude oil prices have fallen nearly 8 percent over the past three days, with most of the slide on Thursday when prices dropped 5 percent, the largest drop since July. Rumors that an unidentified hedge fund was selling front month crude were also cited as a negative factor on the crude market on Thursday.

But on Friday, oil-focused hedge fund BlueGold denied what it said were false rumors about its continuing operations and said it was not behind oil price volatility in recent days.

RECORD TRADING VOLUMES

On Friday, NYMEX's daily trading volume for all crude oil futures contracts hit a preliminary 1,007,414 positions, just below the 1,037,324 reached on December 9. The record was 1,092,509 positions set on June 6, 2008.

A sudden rush of volume in front-month NYMEX crude futures trading during the final moments of open-outcry trading on Wednesday was followed on Thursday by the fifth-highest trading volume on record for the contract at nearly 500,000 lots.