Oil fell below $41 a barrel on Friday, reversing some of the previous day's gains as the focus turned from a stock market rally to bleak economic news.
U.S. non-farm payrolls numbers due later on Friday are likely to add to the gloom, after data the previous day showed applications for U.S. jobless benefits soared to a 26-year high and German manufacturing suffered its biggest decline since 1990.
U.S. light crude for March delivery fell 43 cents to $40.74 a barrel at 0152 GMT, while London Brent crude, which usually trades below its U.S. counterpart, fell 15 cents to $46.31 a barrel.
A steep contango, with the April NYMEX contract $4.86 more expensive than March barrels, is encouraging traders to buy crude now for storage and sale at a later date.
Oil has shed more than $100 from its July peak near $150 a barrel as the global financial crisis triggered recessions in all of the big industrialised economies and sharp slowdowns elsewhere, cutting demand.
Inventories in the world's top consumer, the United States, have swelled.
''The relationship between NYMEX and Brent is still being distorted by the inventory situation in the United States,'' said David Moore, commodity strategist at Commonwealth Bank of Australia.
''Tonight's (payrolls) data may affect the perception of the U.S. economy and may give the market new direction,'' he added.
U.S. non-farm payrolls, due out later in the session, are estimated to have shed more than half a million jobs in January after losing a similar number in December.
Signals from producer group the Organization of the Petroleum Exporting Countries that it may cut output further to help bolster the market have supported prices this week.
The cartel may cut more oil output at a meeting next month, and one OPEC source said a reduction of 1 million barrels per day may be discussed.
U.S. Democrats in the Senate on Thursday pushed towards passage of a huge economic stimulus package despite scant Republican support, hoping to boost the U.S. economy, which could help stem a decline in fuel demand.