SINGAPORE, Feb 6 (Reuters) - Middle East crude markets were absorbing the unexpected cut in official selling prices (OSPs) for Saudi Arabia's heavy and medium barrels heading to Asia. Traders are expected to start discussions for April loading cargoes this week. The steeper than expected cuts to the kingdom's heavier crudes could reflect a move by Riyadh to assure Asian refiners it was ready to offer alternative supplies to Iranian supplies. Most traders were expecting Saudi to raise OSPs for these heavier grades because of the strength of fuel oil cracks, and dismissed any suggestion by the minority group in the market who linked the cut in prices to an anticipated weakening of the fuel oil market. Asia's front-month March fuel oil crack was at a discount of $3.36 a barrel midday Monday, versus year ago levels at a discount of $8.45 a barrels, Reuters data showed. The entire 12-month forward curve for the fuel oil-Dubai cracks, as of midday Monday, was $5-$6 a barrel higher than the same curve on a similar date a year ago, the data showed. * EFS - Front-month Brent/Dubai Exchange of Futures for Swaps (EFS) for March DUB-EFS-1M rose 8 cents to $2.83 a barrel. * OMAN ASSESSMENTS - March Oman traded on the DME was valued at a premium of $1.40 cents to Dubai swap quotes at 0830 GMT, using the settlement price for DME futures, the ICE one-minute marker for Singapore and the Brent-Dubai EFS as calculated by Reuters. * MARKET NEWS - China will reduce its crude oil imports from Iran for a third month, sources said on Monday, as the two remain divided over payment and price terms, although they plan to meet again for talks as early as this week. - Iran will target any country used as a launchpad for attacks against its soil, the deputy Revolutionary Guards commander said, expanding Tehran's range of threats in an increasingly volatile stand-off with world powers over its nuclear ambitions. - South Korean President Lee Myung-bak will hold meetings with major crude suppliers Saudi Arabia, Qatar and the United Arab Emirates from Tuesday through Friday, as the country looks for alternatives to Iranian oil. * REFINERY MARGINS - The complex refining margin for Dubai in Singapore was $9.23 per barrel, up from an average of the last five days of $6.53, Reuters data show. Over the last year, the average margin has been $8.16 cents per barrel. * CRACK SPREADS - Fuel oil's March crack firmed 69 cents to a discount of $3.29 a barrel to Dubai crude. - Gasoil's March crack strengthened 52 cents to a premium of $18.27 a barrel to Dubai crude. - Naphtha's front-month crack eased $1.01 cents to a discount of $6.21 a barrel to Brent crude. * OUTRIGHT PRICES - March ICE Brent was at $114.10 a barrel by 0830 GMT, up $1.79 cents from the previous session. - April Oman was trading at $112.67 by 0830 GMT, up $1.78 from Friday.

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