* Oil prices head for biggest monthly drop in 2 years
* Risk aversion grips markets after Spain downgrade
* U.S. crude stocks forecast up for 10th straight week
* Coming Up: API weekly inventory data; 2030 GMT
By Luke Pachymuthu
SINGAPORE, May 30 Oil prices fell for a second
straight session on Wednesday, with Brent staying under $107 per
barrel, as risk aversion gripped markets after Spain's credit
rating downgrade stoked fears of a worsening euro zone crisis
denting demand outlook.
A shaky euro, which hit a near two-year low versus
the dollar after Egan-Jones Ratings cut Spain's credit rating
for the third time in less than a month, also dragged down oil
prices. A stronger dollar makes commodities priced in the
greenback more expensive for holders of other currencies.
"There is definitely renewed concerns of a contagion in the
euro zone with the debt crisis, there is real pressure now on
Spain's banks, it's a crisis of confidence," said Ric Spooner,
chief market analyst at CMC Markets.
Brent crude eased 35 cents to $106.33 per barrel by
0231 GMT, heading for the biggest monthly drop in two years,
while U.S. crude fell 40 cents to $90.36.
U.S. crude was on track for a more than 13 percent drop this
month, also the biggest monthly decline since May 2010, with a
surge in domestic stockpiles weighing on prices.
Crude stocks at Cushing, Oklahoma storage hub, delivery
point of the U.S. crude oil future contract, have risen to a
record high of 46.8 million barrels.
However, oil price losses may be checked by supply concerns
as Iran's dispute with the West over Tehran's nuclear program
remains unresolved and easing worries about a messy Greek exit
from the euro zone after an opinion poll showed leads for
Greece's pro-bailout conservatives.
EU leaders have warned Greece of the consequences of
renouncing the bailout, saying they will pull the plug on
funding - a move that would lead to rapid bankruptcy and an
ignominious exit from the single currency.
"Honestly at the moment there doesn't seem to be an adequate
contingency in dealing with Greece," Spooner said.
A drop in oil prices was limited by concerns over rising
tensions between Iran and the West after talks failed to resolve
a dispute over the Islamic republic's nuclear program last week.
"Iran continues to remain a significant factor but for the
moment with a short to medium term outlook the focus is on
Europe and the demand side picture if the crisis continues to
deteriorate," Spooner said.
Tehran is refusing to grant United Nations inspectors access
to a facility at Parchin which is suspected of being used to
develop nuclear weapons. Iran says its aims are entirely
Iran has ramped up its production of low-enriched uranium,
in the last five years and it could be used for at least five
nuclear weapons if refined further, the U.S.-based Institute for
Science and International Security (ISIS) said.