Oil prices extended their decline from the previous day to fall below $76 a barrel on Friday, as nervous investors, roiled by debt problems in Dubai, pared their positions.

Dubai has asked creditors of two of its flagship firms for a standstill on debt running into tens of billions of dollars as part of restructuring Dubai World, sparking fears of debt defaults that could hit other parts of the global economy and derail the fledging recovery from the global financial crisis.

Data painting a gloomy economic outlook in Japan, the world's third-largest energy consumer, put further stress on oil prices.

US crude for January delivery stood at $75.65 a barrel by 0511 GMT in electronic trading, down 75 cents from earlier on Friday. There was no settlement price on Thursday because of the US Thanksgiving holiday.

London Brent crude fell 40 cents to $76.59.

The New York Mercantile Exchange will have a shortened floor trading session on Friday.

'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 advisor 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 Dubai-debt shockwaves dragged Asian stocks lower on Friday, shaking banking shares.

The dollar index gained 0.4 percent against a basket of currencies, and recovered slightly from a fresh 14-year low against the yen, prompting other commodities, including gold and grains, to fall.

Adding to the grim economic news, the latest data from Japan showed the consumer price index slid in the year to October at its fastest rate since 2001, with increasing signs of weak demand weighing on prices.

Oil prices have fallen about 7 per cent since striking a year-high of $82 early last month, as lacklustre economic data and bulging fuel inventories in the US combine to dent hopes of a swift recovery in energy demand. – Reuters