* Greek debt fallout concern rises after S&P downgrade
* U.S. oil inventories forecast to rise for 2nd week
* US consumer confidence rose to post-crisis high in April
* Brent premium widens, U.S. crude contango steepens
* Coming up: API oil data at 4:30 EDT, EIA Wed morning
(Recasts, updates prices, market activity)
By Joshua Schneyer
NEW YORK, April 27 (Reuters) - 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 <CLc1> fell $1.76 to settle at
$82.44 a barrel, while ICE June Brent crude <LCOc1> 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 <CL-LCO1=R> 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. <CL-1=R>
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. []
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 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. []
<.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. []
(Additional reporting by Ikuko Kurahone and Barbara Lewis in
London and Alejandro Barbajosa in Singapore; Editing by
Marguerita Choy and David Gregorio)
