London: Oil prices sank to six-week lows below $75 (Rs3,510) a barrel on Friday as fears that Dubai could default convulsed financial markets and the dollar rose as investors moved into safer assets.
US crude for January delivery was $74.62 a barrel by 1302 GMT (India time) in electronic trading, up from a low of $72.39 in early trade, but nearly 5% below Wednesday’s settlement. There was no settlement price on Thursday because US markets were closed for Thanksgiving.
London Brent crude fell $1.35 to $75.65.
“Oil reacted in relation to equity markets and a stronger dollar. Some of the exaggeration is coming from lower liquidity on the market because of the holiday,” said Harry Tchilinguirian, senior commodity analyst at BNP Paribas.
“In terms of fundamentals, nothing has changed in the market. But the knock-on of cross-asset movement has increased since the introduction of quantitative easing.”
European stocks were flat on the day, having fallen at the open on easing concerns over the exposure to Dubai’s debt crisis held in European banks.
The euro was down 0.6% against the US currency as investors trimmed risk exposure. A stronger dollar diminishes the appeal for some investors of oil and commodities priced in the US currency.
Dubai has asked for a debt standstill on tens of billions of dollars as part of a restructuring, sparking debt default fears that could hit other parts of the global economy and derail a fledgling recovery from 2008’s global financial crisis.
“The Dubai situation is very worrying and people are obviously worried about a potential domino effect if Dubai can’t pay off their debt,” said Benson Wang, senior adviser at Commodity Broking Services in Sydney.
“This episode has destroyed the confidence between borrowers and lenders and it has also shaken the confidence about the pace of a global economic recovery.”
Traders said Thursday’s thin volumes and lack of a US crude settlement could also be exaggerating Friday’s oil price move.
“People are coming in to work, reading the papers, absorbing the news from Dubai,” said Tony Machacek, a broker at Bache Commodities in London.
Oil prices have so far fallen about 10% since striking a year high of $82 early last month, as lacklustre economic data and bulging fuel inventories in the US combine to dent hopes of a swift recovery in energy demand.