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NEW YORK (Reuters) - Oil prices fell sharply for a second day on Wednesday, diving more than 3 percent to below $80 a barrel for the first time in six weeks, as traders fled riskier assets and bought the dollar on fears that Greece's debt crisis could spread.
U.S. government data showing a bigger-than-expected 2.8 million barrel increase in domestic crude stocks -- including a rise to record high Cushing, Oklahoma, inventories -- added to the pressure, taking two-day losses to more than 7 percent, the biggest such decline in three months.
Front-month June delivery crude fell $2.77, or 3.35 percent, to settle at $79.97 a barrel, the lowest close since March 15. ICE June Brent crude fell $3.06, or 3.6 percent, to $82.61 a barrel, narrowing the Brent/WTI spread.
"This week's abrupt shift in risk appetite across several asset classes has forced many longstanding institutional accounts off of the long side of the oil market," said Jim Ritterbusch, president of Ritterbusch & Associates, trading consultants in Galena, Illinois.
Rising concerns that Greece's debt crisis could spill into other euro zone countries and derail the global recovery have made investors risk averse, buying the dollar and selling oil, metals and equities. The euro fell below the key $1.29 level for the first time in more than a year. <USD/> .N
"The volatility is extreme, I haven't seen anything like this in a long time," one London-based trader said. "It's all about the slump in the euro today. All commodities are getting absolutely hammered."
U.S. crude oil stocks rose by 2.8 million barrels last week, the U.S. Energy Information Administration (EIA) said, broadly confirming an industry report the previous day. A Reuters poll had predicted a 1.1 million barrel gain. <EIA/S>
Gasoline stocks were up by 1.2 million barrels, dwarfing the forecast for just a 200,000 barrel increase, elevating concerns that increased refinery output was running ahead of lagging consumption.
RBOB gasoline futures tumbled by more than 4.5 percent to $2.2161 a gallon, narrowing its difference to crude oil, also known as the crack spread, to $13.45 a barrel, down over $2.50 in two days.
Distillate stocks, which include diesel, jet fuel and heating oil, rose by 600,000 barrels, well below the forecast for a 1.7 million barrel build.
Crude oil stored at the Cushing, Oklahoma, delivery hub for NYMEX-traded oil hit a record high, climbing by 1.6 million barrels to 36.2 million barrels. But the front-month spread narrowed by 40 cents to $3.10 a barrel after blowing out on Tuesday to the widest level in more than a year.
Shipping routes and production remained unaffected in the U.S. Gulf of Mexico, where oil spill workers raced against time to contain a huge spreading oil slick before it hits the U.S. shoreline and potentially slows oil imports.
Additional reporting by Robert Gibbons in New York, David Sheppard in London, and Judy Hua in Singapore; Editing by David Gregorio