LONDON : The price of oil slumped to a seven-week low point close to 72 dollars on Friday with investors spooked by a shock call from the Dubai government to suspend the debt of a key state company, analysts said.

New York's main contract, light sweet crude for January delivery, reached 72.39 dollars -- the lowest level since the start of October.

It later pulled backed to 74.90 dollars, down 3.06 dollars compared with Thursday's closing value.

Brent North Sea crude for January delivery dropped 89 cents to 76.10 dollars a barrel in London deals.

"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.

"Banks running out of cash has a knock-on effect on every aspect of life, bringing share and commodity prices down and strengthening the dollar. This is exactly what is happening now," added Varga.

Investors dumped shares in alarm on Friday, sending markets plunging as fears of debt defaults bred fresh concern for the world economy after Dubai's shock request to suspend major loan repayments.

Markets were rattled after the Dubai government's investment vehicle Dubai World sought to suspend debt payments for six months. However, European equities staged a modest rebound, bouncing back into positive territory.

Oil prices began falling sharply on Thursday as news of Dubai's request emerged.

Earlier this week, the oil market reacted to US economic data that signalled a possible upturn in demand for energy in the United States -- the world's biggest oil-consuming nation.

Fresh US data showed jobless claims fell in the week ending November 21 to an adjusted 466,000, the lowest amount since September 2008.

A separate report showed consumer spending rose more than expected in October, and a third said sales of new homes rose at their strongest pace since September 2008.

Traders also digested the weekly oil inventories data from the US Department of Energy (DoE).

The DoE reported on Wednesday that US crude stockpiles rose by one million barrels in the week ended November 20, while gasoline reserves climbed by the same amount. Rising inventories tend to depress prices.

However distillate stockpiles dropped by 500,000 barrels last week, while analysts had expected a rise of 500,000 barrels.

Distillates include heating fuel, which is traditionally in high demand at this time of year in the northern hemisphere winter.

- AFP /ls