(Reuters) - Oil steadied below $83 a barrel as declining U.S. gasoline stocks helped offset investor concern about European economies after Standard & Poor's downgraded Spain's credit rating.
Gasoline stocks fell unexpectedly in the United States last week even as refineries ramped up operations, the U.S. Energy Information Administration reported in weekly data, a sign of recovering fuel demand in the world's largest consumer.
EIA data also showed U.S. crude stocks and distillate stocks rose last week, as most analysts had expected.
S&P downgraded Spain's credit rating the day after the agency downgraded Greece and Portugal, pressuring the euro.
"(The downgrade) doesn't portend to things looking rosy," said Gene McGillian of Tradition Energy in Stamford, Connecticut. "As long as these worries are still playing out in Europe, the dollar is going to get stronger and oil prices could be under pressure."
Oil prices pared modest gains after the Spain downgrade during mid-morning trading in New York. They later shot back up into positive territory as U.S. equities markets rose further on healthy corporate earnings that outweighed fears about Europe. .N
U.S. crude for June delivery rose 24 cents a barrel to $82.68 by 1:14 p.m. EDT (1814 GMT). London Brent for June delivery was down 20 cents at $85.58 a barrel.
Brent retained an unusually high premium to NYMEX crude, of $2.91 a barrel, after reaching a $3.65 a barrel premium to NYMEX barrels in earlier trade, the largest since August of 2009.
The discount for front-month U.S. crude contracts relative to contracts a month later narrowed from its widest settlement level since December on Tuesday, at $2.56 a barrel, to $2.38 a barrel in Wednesday's trading.
The discount, known as contango, has been driven in part by a rapid rise in oil stocks in Cushing, Oklahoma, where NYMEX futures are delivered. EIA data showed that Cushing stocks rose for a sixth straight time last week, but only modestly, by 500,000 barrels.
SPAIN DOWNGRADE WEIGHS
S&P's downgrade of Spain came a day after the ratings agency cut Greece's credit rating to junk status, the first time a country using the euro currency has fallen below investment grade.
Portugal's credit rating also was cut Tuesday.
News that a larger joint eurozone and International Monetary Fund aid package for Greece was imminent helped prevent a wider exodus by investors from risky assets such as energy contracts.
A eurozone/IMF aid package for Greece will be worth 100-120 billion euros over three years, according to IMF Managing Director Dominique Strauss-Kahn, opposition members of Germany's parliament said after meeting him.
The euro still weakened and the dollar firmed sharply following the credit downgrades, as investors weighed Europe's chances for economic fallout. .DXY
Oil and other dollar-denominated commodities tend to move in the opposite direction to the greenback, as a weaker dollar makes them cheaper for other currency holders and vice versa.
Ali al-Naimi, Saudi Arabia's oil minister, told a business conference in Chicago that current oil prices are at "sustainable levels." But he also warned that politically motivated policies in energy consumer nations to move away from reliance on oil and other fossil fuels may put world energy security at risk, hurting oilfield investments.
Saudi Arabia has plans to spend $107 billion in its energy sector over the next half decade, Naimi said.
(Additional reporting by David Sheppard in London, Gene Ramos in New York, Karl Plume in Chicago and Alejandro Barbajosa in Singapore; Editing by David Gregorio)
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