NEW YORK – Oil prices closed mixed Friday on concerns that Dubai's call for a freeze on debt payment by a key state-owned company could derail the global recovery from recession.
New York's main contract, light sweet crude for January delivery, settled at $76.05 a barrel, a decline of $1.91 from Wednesday's close. US markets were closed Thursday for the Thanksgiving Day holiday.
In London, Brent North Sea crude for January delivery, which had lost $1.45 Thursday, rose 19 cents to $77.18 a barrel.
In pre-market trading the New York benchmark contract had slid to $72.39, its lowest level since early October.
"The market seems to have calmed down, but clearly not completely reversed," said Ellis Eckland, an independent analyst.
"Oil is a leading risk asset, and was one of the first assets to be sold on these fears that the financial system might have some problems," he said.
"The sole reason for the oil price dump can be summed up in one word: Dubai," said Tamas Varga, an analyst at PVM Oil Associates.
"If the 2008 recession was started by banks overlending then the current debt problem in Dubai is a big warning sign that we're not out of the woods yet.
"Banks running out of cash has a knock-on effect on every aspect of life, bringing share and commodity prices down and strengthening the dollar. This is exactly what is happening now," added Varga.
The Dubai government announced late Wednesday that Dubai World, the city state's flagship conglomerate, is seeking a six-month moratorium on repayment of $59 billion in debts.
"Uncertainty about whether Dubai is a one-off or whether it is the first domino to fall in what could signify the spreading of the financial crisis to emerging markets mounts," Barclay Capital analysts said in a client note.
"Indeed, oil prices could be at the mercy of the renewed financial pessimism till further clarity on the Dubai situation emerges."
Mike Fitzpatrick at MF Global said the market reaction to the Dubai news was similar to the turmoil triggered by the collapse of Wall Street investment bank Lehman Brothers in September 2008.
"It shakes confidence in financial markets and raises the specter of contagion which could trigger a second wave in the credit crisis," he said.
"This will be a troubling development for international banks which are increasing dependent on Middle East markets as source of businesses.
"Some may conclude that more oil will come to market to raise revenue, but even more telling is the volume of investment capital that is fleeing commodities across the board to the safety of the dollar."
