* Arab Light OSP to fall by 40-70 cents/bbl -traders
* Smaller cuts seen for heavier grades as fuel oil margin improves
SINGAPORE, March 1 (Reuters) - Top oil exporter Saudi Arabia is likely to cut prices for all crude grades it sells to Asia in April after demand for Middle East crude fell in last month's trade, trade sources said on Thursday. Middle East crude prices took a dive last month as Asia's demand for April-loading cargoes dropped ahead of a peak refinery maintenance season in the second quarter. The official selling price (OSP) for Saudi's flagship Arab Light crude could fall by at least 40 cents a barrel in April, a survey of five refining sources showed. The price cut tracks a narrower backwardation between the first and third month cash Dubai prices during last month's trades, they said. In a backwardated market, the prompt price is higher than those in future months. Sharp price falls for comparative grades from the Middle East and rising western supplies have prompted some Asian buyers to call for bigger price cuts for Saudi oil, the sources said. Three of the five respondents expect deeper cuts of up to 70 cents a barrel. They all declined to be identified as they were not authorised to speak with media. "Arab Light's OSP is too high compared with other Middle Eastern grades," one of them said. A widening of Oman and Dubai prices, the underlying benchmark for Saudi OSPs, may also prompt the producer to cut prices by another 15 cents, a second respondent said. "(Also) arbitrage supplies are coming, so the Middle East producers have to lower their OSPs," he said. All the respondents expects smaller price cuts for heavier grades after fuel oil margins in Asia improved. Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia. State oil giant Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices. Saudi Aramco officials as a matter of policy do not comment on the kingdom's monthly OSPs.
Below are expected Saudi prices for April (in $/bbl against the Oman/Dubai average):
MARCH Change est.APRIL OSP Arab Extra Light +3.25 -0.85/-0.80 +2.40/+2.45 Arab Light +1.65 -0.70/-0.40 +0.95/+1.25 Arab Medium -0.20 -0.60/-0.40 -0.80/-0.60 Arab Heavy -1.55 -0.60/-0.40 -2.15/-1.95
Source: Reuters, trade
(Reporting by Florence Tan Editing by Joseph Radford)