Oil price slides to near $74 in Europe as Dubai woes deepen economic concerns, dollar rises

Oil slides to near $74 as Dubai woes roil markets

Oil prices dropped to near $74 a barrel Friday as Dubai’s debt problems jolted world markets, raising concern about the prospects for global economic recovery.

By early afternoon in Europe, benchmark crude for January delivery was down $3.94 to $74.02 in electronic trading on the New York Mercantile Exchange. The contract rose $1.94 to settle at $77.96 on Wednesday.

Just a year after the global downturn derailed Dubai’s explosive growth, the emirate is now so swamped in debt that it’s asking for a six-month reprieve on paying its bills. Its main development engine, Dubai World, has said it would ask creditors for a “standstill” on paying back its $60 billion debt until at least May.

That news roiled markets worldwide and sent crude tumbling more than 6 percent in Asia to a six-week low of $72.39 a barrel before the price recovered. The volatility spread to Europe, where crude kept dipping below $74 but also went as high as $74.75.

Dubai “provided a wake-up call that not all is yet back to normal” with the world economy, Petromatrix Research said in a report.

The oil price was also pushed down by a strengthening dollar which, though down against the yen, rose against the euro and the British pound as investors worried about European bank exposure to Dubai’s troubles.

The dollar dropped to a 14-year low of 84.81 yen before climbing back to 86.46 yen. The pound was down 0.9 percent at $1.6375 and the euro fell 0.8 percent to $1.4906.

“The main factor in the fall seems to be the events in Dubai,” said Nick Raffan, head of mining and resources research at consultancy Fat Prophets in Sydney. “People are suddenly reevaluating their risk appetite.”

Raffan said oil’s losses Friday were driven by increased wariness about investment in riskier assets such as stocks and commodities rather than new information about actual demand for oil.

However, recent figures on durable goods orders in the U.S. suggest growth in demand for oil is likely to remain subdued for a while, he said.

“Overall U.S. demand for petroleum products remains weak,” Petromatrix Research said, adding that most OPEC countries are exceeding their production quota despite the uncertain market for crude.

Trading in the U.S. was closed Thursday for the Thanksgiving holiday.

After zooming to $147 a barrel in July 2008 and crashing to $32 in December, oil prices have meandered in the high $70s for more than a month as investors weigh a slow U.S. recovery against surging Asian demand.

In other Nymex trading, heating oil fell 6.10 cents to $1.9291 a gallon. Gasoline for December delivery dropped 7.75 cents to $1.9201 a gallon. Natural gas for January delivery was up 1.3 cents to $5.176 per 1,000 cubic feet.

In London, Brent crude for January delivery was down $1.59 to $75.40 on the ICE Futures exchange.

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Associated Press writer Stephen Wright in Bangkok contributed to this report.