* Futures dip on fears of a contagion of Greece crisis
* Brent premium to WTI narrows
* Coming up: NYMEX July crude futures expiry on Tuesday
* Coming up: U.S. API inventory data on Tuesday (Adds comments)
By Antonita Devotta
NEW YORK, June 20 (Reuters) - Oil fell on Monday, pressured by uncertainty over the approval of austerity measures for Greece and the sell-off of a key spread between Brent and U.S. crude oil futures.
The premium of Brent crude to West Texas Intermediate narrowed to below $18 a barrel in late trade, after blowing out to a record over $23 last week, as U.S. crude futures settled slightly higher after hitting a four-month low on Friday.
"Last week's crack spread and Brent-WTI relationships became a bit stretched and today's action appeared to represent a significant amount of profit-taking out of some of the inter-commodity spreads," said Jim Ritterbusch, president of Ritterbusch & Associates.
"The primary feature in today's trade was some selling rotation away from WTI and into the products and Brent market."
Brent
U.S. oil crude futures
Trading volumes were thin, with Brent trade 20 percent below the 30-day average. U.S. crude trade was focused on the second month, August, with total volumes 37 percent below the 30-day average.
SPREAD PLAY
U.S. crude began shedding losses in early U.S. activity, pushing firmly higher in afternoon trade, with players saying the recent wide discount Brent crude may have been overdone.
Rising supplies of Canadian crude to the U.S. Midwest, including the NYMEX delivery point at Cushing, Oklahoma, have sent the transatlantic arbitrage to record levels this year.
Concerns about the start-up of key planned pipelines, which would help alleviate that glut by shipping crude to the Gulf Coast, have exacerbated the spread.
In addition, Brent has found support from supply disruptions in the North Sea in recent weeks. Traders now say, however, that promises of more oil from Saudi Arabia to help cool down prices may be helping to weaken Brent's premium to WTI.
"The spreads are going to fall apart, it's just a matter of when," said Richard Ilczyszyn, senior market strategist at Lind-Waldock.
Further out on the futures curve, however, the spread remains strong, with December 2012 pushing out by more than $4 in June to over $11 a barrel, indicating traders believe the glut will not ease before then.
"We expect the WTI's physical delivery point, Cushing, to remain oversupplied until at least late 2012," said analyst Michael Wittner at Societe Generale.
Wittner said he expects high supply to Cushing from North Dakota and from Canadian oil sands to result in high stocks at Cushing as a pipeline from there to the coast is unlikely to be ready until end-2012 at the earliest.
"Extra supply to Cushing cannot easily be transported to areas with strong demand. Therefore, the front end of the WTI forward curve should remain in moderate contango until late 2012," he said. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on WTI-Brent spread: http://r.reuters.com/dud32s
Column on WTI-Brent spread: [ID:nN1E75J0CR] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
EURO WORRIES
Traders kept a close eye on the economic crisis in Greece. Euro zone finance ministers gave Athens two weeks to approve stricter austerity measures in return for another 12 billion euros ($7 billion) in emergency loans, piling pressure on Athens to get its ragged finances in order. [ID:nLDE75I0FM]
Concerns about the Greek crisis weighed on markets in early trade. U.S. stocks came close to a key technical level as the Standard & Poor's 500 index dipped toward 1,259, its 200-day moving average, before buyers came in and pushed the index higher. [ID:nN1E75J1B7]
The euro slid against the Swiss franc and could fall further after European finance ministers failed to provide clarity on Greece's outlook by delaying a decision on the next tranche of financial aid.
Traders were also awaiting U.S. inventory data for direction, with the American Petroleum Institute's data due out on Tuesday.
U.S. crude oil inventories were seen lower last week due to lower imports and a rise in refinery utilization rates, a preliminary Reuters poll ahead of weekly stockpile reports showed Monday. [EIA/S] (Additional reporting by Gene Ramos in New York, Zaida Espana in London and Manash Goswami in Singapore; Editing by Matthew Robinson and Marguerita Choy) (antonita.madonna@thomsonreuters.com; +1 646 223 6241; Reuters messaging: antonita.madonna.reuters.com@reuters.net))