Oil rally loses steam

Earning $1500 a second

More Videos

Public upset by oil profits

More Videos

Quick Vote

I believe the future of jobs is in:

• Technology
• Manufacturing
• Health care
• Energy

or View results

NEW YORK (CNNMoney.com) -- Crude prices edged up Friday as investors mulled a mixed report on the nation's labor market and renewed tension between Iran and Israel.

Light, sweet crude for September delivery rose $1.02 to settle at $125.10 a barrel on the New York Mercantile Exchange, losing most of the gains made earlier in the day.

The contract spiked more than $4 earlier following hawkish comments by a key Israeli politician regarding Iran's alleged nuclear weapons program.

Israeli Deputy Prime Minister Shaul Mofaz said that Iran is on a path toward a "major breakthrough'' in its nuclear weapons program which he called "unacceptable,'' according to published reports.

"The Israeli news is all over the market," said Stephen Schork, an oil industry analyst and publisher of the industry newsletter, The Schork Report. But the rally was a "knee-jerk reaction," he added.

Iran is OPEC's second-largest oil producer and signs of instability in the region can cause volatility in the oil market.

Investors worry that a military conflict with Iran could disrupt the flow of oil exports through the strategic Strait of Hormuz and further restrict tight supplies of crude.

But prices quickly retreated as investors put Mofaz's comments "in perspective," according to Phil Flynn, senior market analyst at Alaron Trading. "Cooler heads are prevailing," he said.

Jobs report. Before becoming focused on Iran, the oil market had been preoccupied with broader economic trends, including the health of the U.S. jobs market.

The U.S. Labor Department reported earlier Friday that employers cut jobs in July, for the seventh straight month, and that the unemployment rate rose to a four-year high.

Payrolls shrank by 51,000 jobs in the month but economists surveyed by Briefing.com had been forecasting a loss of 75,000 jobs.

The unemployment rate rose to 5.7% from a 5.5% reading in June. It was the worst reading since March 2004, and slightly worse than economists' forecast of a 5.6% rate.

"But the jobs report can be read in two different ways," Flynn said.

It suggests that rising unemployment will continue to undercut consumer confidence and further diminish demand for gasoline. On the other hand, the total number of jobs lost in the month was well below economists' expectations, suggesting that the nation's labor market may be recovering.

"The economy is pulling us one way geopolitics pulling us the other way," Flynn said. "It's going to be a tug-of-war until the end of the day."

Other markets. On Wall Street, meanwhile, the jobs report and bleak financial results from General Motors weighed on stocks.

The ailing automaker reported a huge second-quarter net loss of $15.5 billion due to restructuring charges and declining sales. GM's (GM, Fortune 500) results highlighted the challenges facing the auto industry as a whole.

Separately, Ford Motor (F, Fortune 500) and Toyota Motor (TM) both reported sharp drops in July sales as high gas prices and a weak economy continue to plague the already battered sector.

Crude futures often benefit from falling stock prices as many investors see oil as a safe-haven investment.

Gas prices. Even as the auto industry reels, gas prices have fallen for 15 days in a row, according to motorist group AAA.

Regular unleaded gas fell 1.1 cents to a nationwide average price of $3.898 a gallon, AAA's daily survey showed.

The average price for regular has fallen more than 21 cents since hitting a record high of $4.114 at the pump on July 16, according to AAA data.