* Trade in Aug-loading Basra Light muted
* Potential buyers say worried about risk of supply
* But conflict still a long way from Basra
* Weak refining margins also sapping demand for crude
By Florence Tan and Meeyoung Cho
SINGAPORE/SEOUL, June 30 Many Asian refiners say
they are shying away from buying the flagship grade of Iraqi
crude in spot markets, worried that the militant insurgency in
the country could spread to the area where the oil is churned
out and exported.
Although the mounting conflict that has swept parts of Iraq
is still hundreds of kilometres away from the southern region
which produces and ships Basra Light crude, Asian buyers say
they are concerned about possible supply disruptions.
"The Iraqi situation is unpredictable, which makes it hard
for us to buy Iraqi crude on the spot markets," said a
Seoul-based refining source. He declined to be named as he was
not authorised to speak with media.
"To a refiner, stable crude supply is the priority."
Trade in August-loading Basra Light has been muted this
month as risk-averse refiners in Asia have sated their need for
crude by buying oil originating in other Gulf producers such as
Saudi Arabia and Abu Dhabi, market participants said.
That is unlikely to have any short-term impact on volumes of
Iraqi exports, set to hit a record this month, as they are all
shipped via term contracts agreed between buyers and Iraq's
State Oil Marketing Organisation (SOMO), with some then being
resold in spot markets.
But it could impact negotiations for future term contracts
if spot resales look likely to be more tricky.
SOMO has term agreements to sell nearly 1.7 million barrels
per day (bpd) of Basra Light to refiners and trading firms in
Asia this year.
Asia typically imports more than half the output of the
grade, with China and India the main buyers in the region so far
Fears of supply disruption due to the insurgency have pushed
up prices for global benchmark Brent crude by 3.4
percent so far in June - its best monthly showing since August.
Taiwanese refiners Formosa Petrochemical and CPC
Corp have opted for Oman for August instead of Basra Light,
sources said, while an Indian refiner said he may replace the
Iraqi grade with West African crude.
Demand for spot cargoes has also been hit as any purchases
made now will arrive in September, a low-season for oil product
usage, and as many refiners have scaled back production as
excess capacity in the sector has squeezed their profits.
Spot trade could also be dwindling as sellers wait until
July 10 for SOMO to inform them what volumes they will be
entitled to in August.
But some traders said refiners would buy Basra Light if
prices were low enough.
"I don't think there is any big risk to physical disruption
but risk is risk ... That's why refiners may try to buy at a
level that takes care of this risk," said a Singapore-based
August-loading cargoes may eventually be sold at discounts
to the grade's official selling price (OSP), down from a
single-digit premium for July, traders said, in light of the
sharp fall for differentials of comparative grades such as Oman
that have traded for August.
(Additional reporting by James Topham in Tokyo; Editing by