By Christian Berthelsen 

Oil prices fell sharply Friday as the dollar climbed in reaction to strong U.S. jobs data and a report on domestic drilling activity disappointed the market.

Light, sweet crude traded on the New York Mercantile Exchange, the U.S. benchmark, turned negative early in the session as the dollar climbed, followed later by global Brent futures. The drop accelerated after a weekly report on U.S. drilling activity was released but regained some ground into the close.

Though the oil market has stabilized after a steep selloff between June and January, analysts say fundamentals remain weak with continued supply growth and slower-than-expected demand. The international market has rebounded more strongly than the domestic one as supply interruptions in Libya and Iraq have brought a measure of balance back into the global market; still, both leading contracts lost ground for the week, with the U.S. benchmark declining for the third week in a row and Brent falling for two of the last three.

On Friday, the Nymex crude contract for April fell $1.15, or 2.3%, to $49.61 a barrel. The Brent contract fell 75 cents, or 1.2%, to settle at $59.73 a barrel on the ICE Futures Europe exchange.

The U.S. gained 295,000 jobs in February, more than the average estimate of 240,000 by economists surveyed by The Wall Street Journal. Though strong jobs gains would normally be a bullish indicator for oil and gasoline demand --as more people go back to work and use their cars to get there--it actually undercut the oil market by driving the dollar higher. Oil and the U.S. currency often move inversely, as a stronger dollar raises oil prices for buyers using foreign currencies.

Losses in the market accelerated after oilfield-services company Baker Hughes Inc. said in a weekly report that the count of rigs drilling for oil in the U.S. fell by 64 this week to 922. Though the decline extended the trend for the 13th week in a row, it was smaller than last week's and appears to be slowing overall, while data from the U.S. Energy Information Administration continues to show rising production. U.S. output is running at more than 9.3 million barrels a day and increased another 40,000 barrels a day last week despite the rig count decline, Citigroup said in a note.

The rig count has become a top focus of the market in recent weeks as investors seek an indication of whether the supply imbalance is beginning to stabilize, but its importance may be starting to fade as the disconnect between it and production activity becomes more clear.

"For right now, the Baker Hughes number has no immediate impact and there's proof of that in the production numbers," said Tariq Zahir, managing member of Tyche Capital Advisors. "People were playing it and not understanding it, but they're starting to understand it more."

Nymex gasoline futures ended down 0.3% at $1.8819 a gallon. Diesel futures fell 0.4% to $1.8690 a gallon.

Write to Christian Berthelsen at christian.berthelsen@wsj.com

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