By early afternoon in Europe, benchmark crude for January delivery was down $4.01 to $73.95 in electronic trading on the New York Mercantile Exchange. The contract rose $1.94 to settle at $77.96 on Wednesday.

Dubai's 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.

That news roiled markets worldwide and sent crude tumbling more than 6 percent in Asia to $72.39 a barrel before the price recovered.

Dubai “provided a wake-up call that not all is yet back to normal” with the world economy, Petromatrix Research said in a report.

“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.”

Raffan said oil’s losses Friday were driven by increased wariness about investment in riskier assets such as stocks and commodities rather than new information about actual demand for oil.

However, recent figures on durable goods orders in the U.S. suggest growth in demand for oil is likely to remain subdued for awhile, he said.

“Overall U.S. demand for petroleum products remains weak,” Petromatrix Research said, adding that most OPEC countries are exceeding their production quota despite the uncertain market for crude.

Trading in the U.S. was closed Thursday for the Thanksgiving holiday.

After zooming to $147 a barrel in July 2008 and crashing to $32 in December, oil prices have meandered in the high $70s for more than a month as investors weigh a slow U.S. recovery against surging Asian demand.

In other Nymex trading, heating oil fell 7.5 cents to $1.9152 a gallon. Gasoline for December delivery dropped 8.9 cents to $1.9083 a gallon. Natural gas for January delivery slid 8.3 cents to $5.080 per 1,000 cubic feet.

In London, Brent crude for January delivery was down $1.87 to $75.12 on the ICE Futures exchange.