Oil falls near $82 on Greek downgrade, U.S. oil glut

By Joshua Schneyer

NEW YORK (BestGrowthStock) – Oil fell more than 2 percent on Tuesday after Standard & Poor’s downgraded the credit ratings of Greece and Portugal, prompting investors to pull cash out of energy markets in a flight from riskier assets.

Concern over rising crude stocks creating a glut in the U.S. Midwest also helped push Europe’s Brent crude to its highest premium versus U.S., West Texas Intermediate (WTI) futures since August, 2009, and pressured front-month WTI to its biggest discount to second-month barrels since December.

Standard & Poor’s cut Greece’s credit rating to junk status minutes after downgrading Portugal, the latest sign that European economies face worsening debt woes as they struggle to emerge from an economic downturn.

The turmoil portends negatively for fuel demand in a key consumption region. The euro extended losses versus the dollar following the downgrades. (.DXY: )

U.S. crude for June delivery fell $1.76 to settle at $82.44 a barrel, while ICE June Brent crude traded down $1.05 at $85.78.

Brent earlier traded at as much as $3.51 a barrel higher than WTI, the biggest premium in more than eight months.

Brent’s advantage was exacerbated by weakness in the June NYMEX crude contract, which settled at a $2.56 a barrel discount, or contango, to July barrels after reaching the widest discount since December earlier Tuesday.

The widening NYMEX crude contango is being driven by a perceived crude glut at landlocked Cushing, Oklahoma, where the barrels are delivered and stocks have risen steadily since mid-March.

A firming dollar has also helped to weaken crude, priced in dollars, by making it more costly for holders of foreign currencies.

“The Greek crisis, which is really a currency crisis, is likely to get even worse over time,” said Joseph Arsenio of Arsenio Capital Management in Larkspur, California.

“As the euro comes under pressure, demand could be affected.”

Most analysts in a Reuters poll expected data on Tuesday and Wednesday would show that U.S. crude stocks rose for a second week last week, by 1 million barrels, as imports increased. (EIA/S: )

Inventories in the U.S. Midwest region are already at their highest levels in at least two decades, according to U.S. Energy Information Administration data.

“Cushing is getting full and my sense is this has started having greater significance for (NYMEX) WTI prices, weakening them relative to other crude,” said Arsenio.

“The situation could last, because more and more crude is flowing into the region.”

The American Petroleum Institute industry group reports weekly U.S. stocks (Read more about the stock market today. ) data later Tuesday, while data from the U.S. Energy Information Administration is due on Wednesday.

A rise in U.S. consumer confidence to an 18-month high in April, according to a private industry group report, failed to offset concerns over rising U.S. crude inventories and Greek debt.

The S&P stock index fell by 1.4 percent, while the dollar firmed 0.7 percent against a basket of foreign currencies. (.N: )

(.DXY: )

U.S. retail gasoline demand dropped 2.7 percent in the week to April 23 from the previous week, according to a MasterCard SpendingPulse report on Tuesday. Year-on-year, U.S. gasoline demand fell 1.9 percent, the report said.

Stock Investing

(Additional reporting by Ikuko Kurahone and Barbara Lewis in London and Alejandro Barbajosa in Singapore; Editing by Marguerita Choy and David Gregorio)

Oil falls near $82 on Greek downgrade, U.S. oil glut