SINGAPORE: The Middle East crude market softened on Tuesday as weak refining margins curbed demand in Asia, outweighing geopolitical risks in Iraq.
Brent rose 4 percent last week after rebels seized northern towns in Iraq although Basra Light exports from OPEC's second largest producer remained unaffected so far.
Thin profits from processing crude into oil products have led some Asian refiners to keep operating rates low, reducing demand for spot supply.
Spot premiums for al-Shaheen, a suitable replacement for Iraq's Basra Light, declined from the previous month, while DME Oman's premium to Dubai quotes slipped to just below $1.
Tasweeq sold five August-loading cargoes at an average premium of 78 cents a barrel to Dubai quotes, traders said, down from $1.16 a barrel last month. ExxonMobil, Chevron, TonenGeneral and Reliance bought at least one cargo each, they said. The deals could not be independently verified.
Das Blend may have also weakened slightly after a cargo was sold to Japan at 13-15 cents a barrel above its OSP, down from a premium of 18-19 cents earlier, traders said. It was not immediately clear who the buyer was.
Murban sellers have reduced their offers to about 15 cents a barrel above OSP after earlier trades at 15-19 cents a barrel, traders said.
Iraq's oil growth targets look increasingly at risk, the International Energy Agency said, highlighting the growing threats to supplies from political instability and violence in OPEC members just as demand is picking up due to a stronger global economy.
The evacuation of some foreign workers is likely to slow activity in the south, consultancy Energy Aspects said in a note.
"The market is already turning to Saudi Arabia to make up for lost Libyan barrels, which risks reducing spare capacity to extremely low levels of 1 million bpd or less," the consultancy said. "Any lost Iraqi output will be hard to make up elsewhere."
Analysts at US-based CIBC said the Iraqi insurgency may give the United States and Iran common ground to consider during this round of nuclear negotiations.
Iran and six world powers will try in talks in Vienna this week to narrow differences and keep alive hopes of ending a decade-old nuclear dispute by late July, despite doubts the self-imposed deadline can be met.
"Another potential upside for oil production is the effectiveness of Kurdish forces in staving off ISIS in Kirkuk," CIBC analysts Katherine Spector and Mike Tran said in a note.
"Baghdad hasn't budged on the issue of allowing the Kurds to export oil, but aligned interests in this case could move that dial."
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