Oil prices steadied at $76 a barrel today, shedding most of the session's early gains, as worries about Dubai's debt crisis and its impact on the world economic recovery returned to haunt investors.
Crude oil prices had gained as much as 80 cents to $76.80 a barrel today, thanks to a weaker US dollar and hopes that Dubai's debt woes wouldn't feed into the wider market.
But the January delivery contract soon lost ground, and turned negative at about 0515 GMT. The contract was up 19 cents at $76.24 a barrel at 0538 GMT.
London Brent crude gained 17 cents to $77.35.
Traders said the fall in prices was not driven by any news, and it appeared that some investors may have sold off big volumes and cashed out on the contract.
"The market is very cautious and that could be driving the sell-off we saw. There hasn't been much news coming out of the Gulf area and that has kept a lot of people guessing," said Benson Wang, a senior advisor at Commodity Broking Services Pty in Sydney.
"There are also some concerns that this episode could start a domino effect and other countries could also face problems with financing."
Financial markets shuddered last week after Dubai said it would ask creditors of state-owned Dubai World and Nakheel, the builder of its palm-shaped islands, for a standstill pact as a first step toward restructuring billions of dollars of debt.
But confirmation from Abu Dhabi that it would extend some help to Dubai, as well as moves by the United Arab Emirates to offer emergency assistance to banks in Dubai, helped calm some market concerns.
Asian stocks made a tentative recovery after last week's steep sell-off over the Dubai debt crisis.
The greenback edged down against other major currencies today, with the dollar index falling 0.57 per cent against a basket of currencies.
US dollar movements and developments in Dubai will be key factors in driving the direction of oil prices this week, analysts said.
Prices are up 72 per cent so far this year, but are still roughly half their July 2008 high of more than $147 a barrel.
Concerns about a sluggish recovery in global fuel demand, along with high fuel stockpiles in the United States, have pressured crude prices, which are set for a fall of about 0.8 per cent this month, their first decline in four months.
Analysts cautioned that sentiment remains on edge and there could be another round of corrections in the equities and commodities markets if Dubai was not able to resolve its debt woes.
Implied volality on US crude futures, a measure of risk perception based on options, rose by 15 per cent on Friday, the steepest jump since October 2008.
"Oil prices could be at the mercy of the renewed financial pessimism till further clarity on the Dubai situation emerges," Barclays Capital said in a research note on Friday.
"While short forays below the recent trading range cannot be ruled out as a result of the renewed pessimism, we do not see any underlying shift in the oil market fundamentals and thus expect a return to normalcy once initial fears abate," it said, adding that it saw $70 as the minimum support level.
Separately, Iran announced plans on Sunday to build 10 new uranium enrichment plants in a major expansion of its atomic programme, just two days after the UN nuclear watchdog rebuked it for carrying out such work in secret.
Reuters