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Added November 28, 2009
Oil prices end the week trading on solid ground although concerns that Dubai’s call for a freeze on debt payment by a key state owned company could derail the global recovery from recession.
NYMEX light sweet crude oil futures for January delivery, settled at 76.05 dollars a barrel, a decline of 1.91 dollars from Wednesday’s close while in London, ICE Brent crude oil futures for January delivery, which had lost 1.45 dollars Thursday, ended trading 19 cents to 77.18 dollars a barrel.
“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,” said Ellis Eckland, an independent analyst.
“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.
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 dollars 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.”
“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.” said Mike Fitzpatrick at MF Global.
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