--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Oct 8 (Reuters) - Any Internet search of crude quality will likely turn up that light, sweet oils are prized for the higher quality fuels they yield, but this dynamic is changing in Asia.
The prices of light, sweet crudes have been declining relative to more medium and heavy grades this year, for both structural and more temporary reasons.
Malaysia's Tapis crude
Tapis is a benchmark light, sweet crude, with an API gravity of 42.7 degrees and a sulphur weight of 0.04 percent, while Cossack is another premium light oil with an API of 47 degrees and sulphur of 0.03 percent.
Oman is typical of many Middle East medium oils, with an API of 31.2 and a sulphur of 1.54 percent.
The spread between the light and medium oils used in Asia has typically been much wider, but has been on a narrowing trend this year.
In April 2011, Tapis was $15.76 a barrel and Cossack $12.76 a barrel higher than Oman, and these sort of levels were still in play this time last year, when the premium was $16.35 a barrel for Tapis and $11.85 for Cossack.
But by May this year, the premium for Tapis had narrowed to $10.24 a barrel and that for Cossack to $4.70, a trend that has continued with Oman actually trading higher than Cossack briefly last week.
The obvious factor driving the narrowing between light and heavier grades is the loss of Iranian supplies as Western sanctions ramped up against Tehran's nuclear programme this year.
Measures aimed at restricting sales of Iranian crude have taken at least 1 million barrels per day of mainly heavy and medium, sour grades off the market.
This has resulted in the major Asian buyers of Iranian cargoes - China, Japan, South Korea and India - turning to other suppliers such as Saudi Arabia, Kuwait, Iraq and African producers.
As a result, prices of medium and heavy crudes have risen relative to lighter grades.
Any further narrowing of the spread will depend on whether Iranian supplies will stay relatively constant at the current lower levels, get squeezed further by increasing sanctions or rebound if some kind of agreement over Iran's controversial nuclear programme is reached.
With politics nothing is certain, but it seems that of the three options above, a settlement currently looks the least likely, and it's now a battle of ingenuity and guile to see if the Iranians can work out sufficient ways of getting around the sanctions and keep their oil flowing.
The other reason for the narrowing spread has been the building of new refineries focused on using heavier crudes.
This has been a feature of both Indian and Chinese refinery projects in recent years, the theory being that heavier crudes traded at a discount to lighter grades, and building complex refineries to process them would boost profitability.
While the narrowing of the spread has undermined this argument to some extent, it's more likely allowed more simple refineries that rely on light crudes to continue operating rather than being squeezed out by the large, complex units such as those run by Reliance Industries at its 1.2-million bpd complex at Jamnagar on India's west coast.
The trend to building refineries designed to process heavier crudes is also likely to continue for some time, meaning this shift is structural.
This can be seen in China's crude import figures.
In August, China didn't buy any Malaysian oil, and year-to-date purchases are down 52 percent to 638,025 tonnes.
Purchases from Australia, while still up in year-to-date terms, have declined for the past four months and August's total of 238,985 tonnes was almost two-thirds less than the 627,492 tonnes recorded as recently as April.
The data shows that Russia is among the big winners in increasing exports to China, with year-to-date shipments up 32 percent to 16.3 million tonnes.
Russia's ESPO oil is a medium crude with an API of 34.7 and sulphur of 0.6 percent.
Also up is Venezuela, whose Orinoco crude has an API of 9 and is one of the heaviest grades available, and Angola, whose crude ranges from heavy to medium.
The increasing use of diesel, or gasoil, is also driving the use of heavier grades. Heavier grades yield more middle distillates such as diesel while light crudes produce more light distillates such as gasoline.
The premium of Singapore gasoil over Dubai crude, known as the crack, was $19.52 a barrel on Oct. 5, while that for Singapore 92-RON gasoline over Brent was $12.33, a $7.19 difference.
This is a turnaround from 2009 when the spreads were narrow and gasoline's crack was higher than gasoil's at several time during the year.
The drive toward diesel use in Asia is also unlikely to slow, with India, which still subsidises the fuel, and Australia's mining industry leading the way.
All this means that Asian light crudes are going to find it harder to maintain a premium over medium to heavy grades, for at least as long as Iranian supplies remain constrained.
(Editing by Miral Fahmy)