Tapis Crude Oil, Asia's Costliest, Slides as Demand Declines

By Nesa Subrahmaniyan

Dec. 4 (Bloomberg) -- Malaysia's Tapis, the most expensive crude oil in Asia, is trading at a more-than-three-year low as refinery demand declines for low-sulfur grades to make gasoline and diesel fuels.

Petroliam Nasional Bhd., Malaysia's state oil company, set yesterday its so-called adjustment price, or alpha, on Tapis for December shipments at parity to the crude's benchmark price. That's the lowest since June 2005, when it was at a premium of 10 cents a barrel. For November cargoes, Petroliam Nasional, known as Petronas, set the premium at $1.40 a barrel.

Demand for Tapis and similar Asian low-sulfur crudes is falling as global economic growth weakens, forcing China Petroleum & Chemical Corp., Asia's largest refiner, Nippon Oil Corp. and SK Energy Co. to cut output. China is exporting diesel after importing since August 2007 as domestic consumption slows.

``The market is depressed and the alpha is getting chipped away because Asian refiners are holding back on operating rates,'' said Victor Shum, senior principal at energy consultant Purvin & Gertz Inc. in Singapore. ``The Chinese are back in export mode and it's hard to say when demand will pick up.''

Tapis, pumped by Exxon Mobil Corp. and Petronas on the east coast of Peninsular Malaysia, has fallen 71 percent to $44.17 a barrel on Dec. 3 since reaching a record of $153.12 on July 15. The crude is prized by refiners for its high yield of gasoline, diesel and kerosene.

Halt Contracts

Petronas may stop selling Tapis crude under yearlong contracts next year because of declining output, while using it to process into fuels at domestic refineries, oil-pricing service Platts reported yesterday. The Malaysian oil company hasn't renewed Tapis contracts for 2009, Platts said.

The Tapis field was discovered in 1969 and started production in 1980. Output is about 300,000 barrels a day. Exxon has a 30 percent stake in the area while Petronas holds the rest.

Tapis, among Asia's premium grades along with Australia's Cossack and Griffin, is valued because it enables refiners to produce a greater amount of gasoline without increased investments to refine crude from the Middle East that contains a greater proportion of sulfur and other pollutants.

Tapis, which means refine or process in the Malay language, is a light, sweet oil with an American Petroleum Institute gravity number of 45.2 degrees. Gravity measures the viscosity, or thickness, of the crude. The higher the number, the lighter the oil and the more gasoline it typically yields per barrel. Tapis contains 0.0343 percent sulfur by weight.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.