Oil prices sank to a six-week low below $73 a barrel on Friday as fears of debt default in Dubai convulsed financial markets and the dollar rose as investors moved into safer assets.
U.S. crude for January delivery was $73.70 a barrel by 0906 GMT in electronic trading, down more than 5 percent from Wednesday's settlement. There was no settlement price on Thursday because U.S. markets were closed for Thanksgiving.
London Brent crude fell $1.99 to $75.00.
European stocks also fell on Friday. The FTSEurofirst 3000 <.FTEU3> was down 1.4 percent in early trade, after falling 3.3. percent on Thursday.
The euro was down more than 1 percent against the U.S. currency as investors trimmed risk exposure. A stronger dollar diminishes the appeal for some investors of oil and commodities priced in the U.S. 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.
The New York Mercantile Exchange will have a shortened floor trading session on Friday.
Traders said Thursday's thin volumes and lack of a U.S. 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.
We've seen such a substantial continuation move because the funds are heavily long in commodities and the euro, and the drop has triggered some technical liquidation. You really have to gauge it on Brent.
Technical analysts pointed to support levels for London Brent January futures, which closed on Thursday at $76.99, down $1.45 from Wednesday.
Forget yesterday's price action, it's all happening this morning, technical analyst Clive Lambert at FuturesTechs wrote in a note to investors, adding that Friday's moves could see Brent head toward $65 a barrel.
Oil prices have so far fallen about 10 percent since striking a year high of $82 early last month, as lackluster economic data and bulging fuel inventories in the United States combine to dent hopes of a swift recovery in energy demand.
(Additional reporting by Fayen Wong in Perth, editing by Sue Thomas)