Oil drops 7 percent to 3-1/2-year low

By Edward McAllister

NEW YORK (Reuters) - Oil prices dropped more than 7 percent to below $50 a barrel on Thursday as a bearish U.S. jobs report intensified concerns of a long and deep global recession and further crushed fuel demand expectations.

The U.S. government reported the number of workers making new claims for jobless benefits surged last week to the highest level in 16 years, helping to push down global equity markets.

U.S. crude fell $4.00 to settle at $49.62 a barrel, the lowest settlement since May 23, 2005. London Brent crude shed $3.64 to settle at $48.08 a barrel, its lowest close since May 20, 2005.

"With the global equity indices being led lower by U.S. indices, such as the S&P 500 and Dow Jones Industrials, which are both testing the lows dating back to 2001-2002, commodities across the board are on the defensive, with crude oil being the poster child for a major global recession," Chris Jarvis, senior analyst for Caprock Risk Management, said.

"Further weakness can be expected for crude oil, if global markets continue to march on their deep spiral south."

Oil has tumbled nearly $100 from record highs above $147 a barrel in July, as the economic crisis strangles demand growth in large consuming nations such as the United States.

Citigroup Inc's (C.N) shares tumbled 25 percent as investors questioned the bank's ability to withstand what are expected to be billions in additional loan losses in 2009.

As demand slumps, oil companies plan to store millions of barrels of crude in the hope economics will improve.