Oil ends down 14 percent in May, Spain weighs

NEW YORK (Reuters) - U.S. crude oil futures ended lower on Friday, posting their worst monthly loss since December 2008, as a downgrade of Spain’s credit ratings and disappointing U.S. economic data fueled investor caution about riskier assets.

Fitch Ratings downgraded Spain’s credit ratings by one notch on Friday, saying the country’s economic recovery will be “more muted” than government forecasts due to austerity measures.

The ratings downgrade pressured oil that had already retreated from a two-week high above $75 per barrel on disappointing U.S. economic data.

“Oil futures are down a lot and it’s all because of the news of Fitch downgrading Spain’s credit rating. Ahead of the long weekend, crude futures have latched on to the stock market which is falling on euro-zone worries,” said Mark Waggoner, president at Excel Futures in Bend, Oregon.

U.S. crude futures for July delivery fell 58 cents, or 0.78 percent, to settle at $73.97 a barrel, having traded as low as $73.13 after reaching an early $75.72 high .

Front-month crude fell $12.18, or 14.1 percent in the month of May, the biggest monthly percentage loss since December, 2008, when prices fell 18.1 percent.

London’s ICE Brent crude fell 64 cents to settle at $74.02, trading in a range from $73.28 to $75.74. Front-month Brent crude was down $13.42, or 15.4 percent for the month, the biggest monthly percentage decline since November, 2008,

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Oil markets had expected some volatility with U.S. June refined products futures contract expiring on Friday.

U.S. stocks ended lower, finishing their worst month in over a year after Spain's credit rating downgrade put euro-zone debt issues back into focus. .N

The euro fell across the board after the downgrade. <USD/>

U.S. consumer spending was unexpectedly flat in April, even though real disposable incomes had their biggest increase in nearly a year, the Commerce Department said.

The Institute for Supply Management-Chicago said its index of Midwest business activity fell in May. Business activity grew less than expected as employment declined.

U.S. consumer sentiment rose slightly in May from April but stayed near levels reported since February, while the one-year inflation expectations climbed to the highest since October 2008, a Thomson Reuters/University of Michigan’s Surveys of Consumers report said.

Traders work in the oil options pit on the floor of the New York Mercantile Exchange in New York City, May 20, 2010. REUTERS/Mike Segar

Oil prices have been extremely volatile in May. U.S. crude hit an intraday low of $64.24 on May 20, ahead of the expiry of the June futures contract, almost $23 below its peak at $87.15 on May 3, its level highest for 19 months.

This volatility has left investors cautious, though some oil traders argue the market may have found a floor.

A Reuters survey on Friday showed the Organization of the Petroleum Exporting Countries’s oil supply up in May to the highest in 17 months, suggesting a price slide has yet to spur closer adherence to agreed output targets.

Traders are keeping an eye on forecasts for the Atlantic hurricane season that have revived concerns of disruption to supplies in the Gulf of Mexico, where BP BP.L was trying to plug a gushing oil well.

In its first outlook for the Atlantic hurricane season that begins on June 1, the U.S. National Oceanic and Atmospheric Administration forecast 14 to 23 named storms, with eight to 14 hurricanes, nearly matching 2005’s record 15.

Hurricanes Katrina and Rita devastated offshore Gulf of Mexico oil production and Gulf Coast refineries in 2005.

The coming Memorial Day weekend is the traditional start of the U.S. summer driving season, when motor fuel demand usually increases. U.S. diesel fuel demand for trucking and industry is rising, a weekly government report showed on Wednesday.

Oil demand in the U.S. climbed almost 7 percent over the past four weeks, the U.S. Energy Information Administration said, led by a 16 percent jump in demand for distillates, a category that includes diesel fuel and heating oil.

Additional reporting by Gene Ramos in New York, Christopher Johnson in London and Alejandro Barbajosa in Singapore; Editing by Sofina Mirza-Reid