Crude prices fall on Dubai debt jitters

By DEBORAH JIAN LEE

posted: 1 HOUR 20 MINUTES AGO

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NEW YORK -Shades of the roiling energy markets that were set off last year by the crisis on Wall Street emerged again Friday with crude seeing the largest percentage drop in prices since January.

The sell-off this time followed troubling news from Dubai, which asked lenders for a six-month reprieve on payments for about $60 billion in debt.

Benchmark crude prices plunged by 7 percent in early trading, though those declines eased as investors weighed the chances that Dubai's problems would spread to Europe, Asia and the United States.

It was the fear of frozen credit markets last year that sent crude prices from $147 per barrel in July to about $32 by December.

Crude prices bounced off six-week lows Friday as investors digested the news. The New York Mercantile Exchange, where U.S. benchmark crude is traded, was closed Thursday for a holiday as information from Dubai emerged, which could have exacerbated the selling.

Benchmark crude for January delivery fell $2.20 to $75.76 on Nymex by midday.

At one point, prices had dropped $5.57, the largest dollar decline since April 20 when crude prices tumbled $4.45 to $45.88.

Any decline in the price of crude would likely help most consumers in the short term because gasoline and other fuel prices tend to follow the direction of oil.

At the pump, retail gas prices slid by a penny from a week ago to a new national average of $2.632 a gallon, according to AAA. A gallon of regular unleaded is 5.1 cents cheaper than a month ago and prices have fallen for a week straight.

The day after the Thanksgiving is usually a very light day on markets and most energy experts said trading next week would be a better indicator for consumers as far as energy prices.

Dubai has experienced unprecedented growth over the past decade, and the semiautonomous city-state has spent billions on sprawling man-made islands, an indoor ski slope and the world's largest tower.

It's main funding vehicle, Dubai World, said it would ask creditors for a "standstill" on paying back its $60 billion debt until at least May.

That helped send the U.S. dollar higher, which can add more downward pressure on oil prices.

Crude is bought and sold largely in dollars, so investors holding major currencies would have to pay more to buy oil when the dollar rises.

"The strengthening dollar is dislodging a huge amount of speculative capital," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates., adding that energy demand weakness throws yet another wrench into the industry's recovery.

In other Nymex trading, heating oil fell 3 cents, or 3.1 percent to $1.9599 a gallon. Gasoline for December delivery dropped 5.46 cents to $1.943 a gallon. Natural gas for January delivery climbed less than a penny to $5.17 per 1,000 cubic feet.

In London, Brent crude for January delivery rose 6 cents to $75.05 on the ICE Futures exchange.

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Associated Press writer Barry Hatton in Lisbon and Stephen Wright in Bangkok contributed to this report.

2009-11-27 12:15:03