By David Sheppard
Oil shed almost a third of gains seen since Feb since hitting a 19-month peak above $87.
Oil fell 1.5 percent towards $82 a barrel on Wednesday, extending the steepest one-day loss in three months as the unfolding crisis in Greece rattled markets and mounting US crude oil inventories pointed to soft demand. Rising concerns that Greece's debt crisis could spill over into other euro zone countries and derail the global recovery have seen oil futures shed almost a third of gains seen since February since hitting a 19-month peak above $87 on Monday.
"So much good news is already priced into this market that when sentiment turns gloomy, as it has done with Greece and Spain, we're bound to see jitters from time to time," said Helen Henton, head of commodity research at Standard Chartered.
"We are also expecting to see a big increase in US crude oil inventories later today."
U.S. crude for June delivery was down $1.31 at $81.43 a barrel by 1128 GMT. Prices are down more than 6.5 percent since hitting $87.15 on Monday, but are more than double the level they were at the start of 2009.
London Brent crude was down $1.10 $84.57 a barrel.
On Wednesday, Finland's finance minister said there is a risk Greece's financial problems could spread to Spain or Portugal, while a senior member of Germany's ruling party said concerns remain that an international aid package for Greece could fail.
The euro fell to its lowest level against the dollar since April 2009 on Wednesday, touching $1.2922.
Dollar-priced commodities like oil are undermined by strength in the greenback as they become more expensive for holders of other currencies. Rising risk aversion is also a factor as investors pull money out of volatile assets like oil.
"The main influences now are the rise in the dollar, the sovereign concerns in the euro zone spreading into Portugal and Spain. I think a pretty important factor though, going forward, is the build in oil stocks in the United States," said Ben Westmore, an analyst at National Australia Bank.
Crude oil inventories in the world's largest energy consumer rose by 3 million barrels in the week to April 30, the American Petroleum Institute said on Tuesday. Analysts polled by Reuters had predicted a 1.1 million barrel rise.
Gasoline stocks also rose, climbing by 1.5 million barrels against analyst expectations for a 200,000 barrel build.
Figures from the U.S. government's Energy Information Administration are due at 1430 GMT on Wednesday.
U.S. demand for gasoline at the pumps, which makes up more than 10 percent of total world oil demand, was down 2.3 percent on last year in the week to April 30, the Mastercard SpendingPulse report showed on Tuesday.
Oil spill workers raced against time in the Gulf of Mexico, hoping to seize on at least one more day of calm weather in their fight to contain a huge and growing slick before winds turn against them.
Crude oil prices have not been seriously affected by the oil spill after a deadly April 20 rig explosion triggered a breach in BP's well. (Reuters)For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.