The Middle East sells most of its crude to Asia. Crude from Abu Dhabi, Oman, Qatar and Bahrain, to load in August has been sold at lower differentials than the previous month, despite a lightning offensive by Islamist insurgents in northern Iraq which drove up Brent futures by 4 per cent last week.Iraq exports the bulk of its crude from southern Basra where the flow of oil has not been affected so far, but there are concerns that the instability could cause the second-largest Opec producer to miss output targets."People are not pricing in Iraqi barrels missing in the short term," said a trader at a large oil company. The trader said, however, prices could be affected longer term if instability persisted.In the Middle East crude market, spot premiums for Al Shaheen, a suitable replacement for Iraqi Basra Light, slipped nearly 40 cents a barrel from the previous month. The premium for medium sour Oman has also fallen to just under $1, down from about $1.60 in the same period last month.Premiums for light sour grades, such as Murban, also weakened as thin profits from processing crude into oil products meant some Asian refiners kept operating rates low, curbing demand for crude. Asia is also due to receive more crude from Europe, Africa and Latin America as rising production and lower demand in those regions push excess supplies eastward.North Sea crude exports will resume from late June as Vitol and Trafigura have sold 4 million barrels of Forties to North Asian buyers so far, traders said.Offers of Latin American grades, displaced by rising US shale oil output, are also rolling into Asia. These grades, typically bought by China and India, are able to replace Middle Eastern crude.