TOKYO, Feb 5 Saudi Arabia raised the official selling price (OSP) differential for its he

TOKYO, Feb 5 (Reuters) Saudi Arabia raised the official selling price (OSP) differential for its heaviest crude by 90 cents for March, nearly double expectations, in a move that may spur gains in competing Middle East grades, traders said on Monday.

The world's biggest exporter left prices for its lighter grades little changed versus February, but raised the OSP of Arab Heavy by 90 cents a barrel to $4.60 below the Oman/Dubai average a barrel, the strongest level since last April.

Refiners and traders polled by Reuters had expected a rise of no more than 50 cents following a sharp improvement in the fuel oil crack to Dubai swaps in January. The OSP for Arab Medium was broadly in line with forecasts, rising by 50 cents.

While directionally in line with market sentiment, the higher prices may drive up demand for other heavy-sour Middle East spot market crudes such as Qatar's al Shaheen or Bahrain's Banoco Arab Medium crude if lifters seek to minimise Saudi purchases.

''I had expected the differentials between the heavy and light crude to narrow,'' said a trader. ''Because the heavy grade is expensive, other competing grades are likely to be sought.'' About half of Saudi Arabia's 7 million barrels per day (bpd) crude exports move to Asia.

FUEL CRACK GAINS Heavy crudes have benefitted from the recovery in the fuel oil crack spread from a $17 discount a month ago to a 10-month high of near minus $8, as supplies tightened significantly in Asia and bad weather in Europe cut arbitrage flows. FUELARB] They have also been buoyed by OPEC's decision to curb output, which have hit the cheaper, denser grades most heavily.

Saudi Arabia told its customers in Asia it would apply a 10-13 percent cut in crude supplies for February after the Organization of the Petroleum Exporting Countries agreed a second 500,000-bpd reduction from Feb. 1.

The kingdom is widely expected to maintain those allocations when it confirms March shipments later this week or early next week.

On lighter grades, Saudi Arabia raised its March OSP for Arab Light by 20 cents, while the price for Extra Light grade was cut by 15 cents, mostly in line with expectations.

The March price for Super Light was kept unchanged.

March prices are as follows, shown in US$ per barrel: March Feb Change estimated March OSP Arab Super Light +$6.20 +$6.20 0.00 n/a Arab Extra Light +$3.00 +$3.15 -$0.15 +$2.90/+$3.15 Arab Light +$0.25 +$0.05 +$0.20 -$0.05/+$0.15 Arab Medium -$2.25 -$2.75 +$0.50 -$2.75/-$2.25 Arab Heavy -$4.60 -$5.50 +$0.90 -$5.50/-$5.00 NOTE: Saudi term crude supplies to Asia are priced as a differential to the Oman/Dubai average.

REUTERS CS VV1136