Dubai debt fears hit oil prices, global stock markets

Oil prices sank to near $74 a barrel in trading on Friday in Asia as investors curtailed their risky bets on commodities amid uncertainty about stock markets and the global fallout from Dubai’s financial troubles.

Benchmark crude for January delivery was down $3.50 to $74.46 at early afternoon Bangkok time in electronic trading on the NYMEX, extending losses from European trade, while in London, Brent crude for January delivery fell $1.19 to $75.80 on the ICE Futures exchange. Trading in the US was closed Thursday for the Thanksgiving holiday.

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, news that roiled markets worldwide.

“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.”

Worries over Dubai’s debt problems have driven global stock markets down sharply. The move by state owned Dubai World to delay paying some of its debt shook the markets in Europe on Thursday and those nerves spilled over into Asia. Tokyo’s benchmark Nikkei fell 3.2% to 9,081.52, its lowest level since July. In Hong Kong, the Hang Seng was down 4.9% at 21,239.5.

The biggest underlying fear is that Dubai’s problems could reignite the financial turmoil of the credit crisis. The Gulf state, which has less oil money than many of its neighbours, became a trading and tourism hub with global ambitions.

It said on Wednesday it would ask creditors of the state-owned Dubai World and Nakheel to agree to a standstill on billions of dollars of debt as a first step towards restructuring.

Dubai World, the conglomerate that led the emirate’s expansion, had $59bn (£36bn) of liabilities as of August, a large proportion of Dubai’s total debt of $80bn. Nakheel was the builder of three palm shaped islands off Dubai.

The news shook markets that are recovering from the collapse of the US housing market and contagion that threatened to rupture the global financial system last year. “The panic button’s been hit again,” said Francis Lun, general manager of Fulbright Securities. Banks and builders were hit hardest as they are the most likely to be exposed to firms with property at the sharp end of the slump.

Tags:  debt, Dubai, markets, oil prices, stock