Crude oil fell from the highest level in 27 months as a bigger-than-forecast increase in U.S. jobless claims signaled that demand will be slow to rebound.

Oil dropped 0.5 percent after the number of first-time claims for unemployment insurance payments jumped to the highest level since October in a Labor Department report. Demand for petroleum products has dropped 8.2 percent in the past two weeks, according to the Energy Department.

“The jobless claims are making people marginally bearish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Oil for February delivery fell 46 cents to settle at $91.40 a barrel on the New York Mercantile Exchange. Yesterday, futures closed at $91.86, the highest level since Oct. 3, 2008. Prices have risen 15 percent in the past year.

Initial jobless claims climbed by 35,000 to 445,000, the government reported today in Washington. The median estimate in a Bloomberg News survey called for 410,000 filings.

“We pulled back after the jobless numbers,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York.

Benchmark U.S. stock indexes fell from two-year highs on the jobs report. The Standard & Poor’s 500 Index slipped 4.14 points to 1,281.82 at 2:51 p.m. in New York after closing at the highest level since August 2008 yesterday. The Dow Jones Industrial Average dropped 49.35 points, or 0.4 percent, to 11,706.09.

Fuel demand slipped 0.5 percent to 19 million barrels a day in the week ended Jan. 7, the Energy Department said yesterday.

Euro Surges

Oil gained as much as 0.6 percent before erasing its advance as the euro climbed, boosting the appeal of dollar- denominated commodities.

The euro rose after European Central Bank President Jean- Claude Trichet said inflation risks may rise. The currency also advanced on optimism that European leaders will take action to quell the region’s debt crisis and as Spain met its target at its first debt auction of the year.

“We’re seeing some limits to the downside because of the strength in the euro,” said Matt Smith, a commodities analyst for Summit Energy in Louisville, Kentucky. “It’s a really big move.”

The dollar dropped 1.8 percent to $1.3364 per euro at 2:35 p.m. in New York. Earlier, it touched $1.3383.

Drilling Regulations

An overhaul of U.S. oil-drilling regulations won’t slow the review of applications from producers seeking to resume exploration in the Gulf of Mexico following a moratorium imposed after the BP Plc oil spill, according to the head of the U.S. agency that oversees drilling.

“We will implement reforms necessary to make offshore oil and gas production safer,” Michael R. Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, said in a speech today in Washington. “The processing of drilling permit applications and proposed drilling plans will not be delayed while these additional reforms are developed.”

The Organization of Petroleum Exporting Countries will reduce crude loadings this month, partly as demand from Asia slows, according to tanker-tracker Oil Movements.

Shipments will drop 0.9 percent to 23.51 million barrels a day in the four weeks to Jan. 29 from 23.72 million barrels in the period ended Jan. 1, Oil Movements said today in a report. The data exclude Ecuador and Angola.

The World Bank said in a report today that China’s economy will grow 8.7 percent in 2011, less than in 2010, as the country’s government tries to limit increases in asset prices.

U.S. oil supplies fell 2.15 million barrels, or 0.6 percent, to 333.1 million barrels in the week ended Jan. 7, the sixth consecutive weekly drop, according to yesterday’s Energy Department report. Inventories are at their lowest level since February.

Brent Crude

Brent crude for February settlement fell 4 cents to $98.08 a barrel on the ICE Futures Europe exchange in London. Yesterday, the contract climbed to $98.85, the highest price since Oct. 1, 2008, when Brent futures last traded above $100.

Brent cost $6.68 a barrel more than New York futures, the widest level since February 2009.

The U.S. Commodity Futures Trading Commission today voted 4-1 to propose rules that would limit the number of contracts a single firm can hold following discussions on curbing speculation in raw materials. The public has 60 days to critique the caps. No date is for a final vote on the rules.

Oil volume in electronic trading on the Nymex was 719,296 contracts as of 2:32 p.m. in New York. Volume totaled 933,343 contracts yesterday, 44 percent above the average of the past three months. Open interest was 1.52 million contracts, the highest level since Nov. 4.