April 4, 2011 / 4:27 AM / 9 years ago

UPDATE 2-Malaysia to price all crude on dated Brent from June 1

* Petronas to price its crude on 100 percent Platts dated Brent

* Drops APPI on volatility, divergence from world marker

* To start selling June cargoes under new prices (Adds comments)

By Florence Tan

SINGAPORE, April 4 (Reuters) - Malaysia’s Petronas will switch to dated Brent as the basis for pricing its crude after falling output and volatility made the previous benchmark it had put in place more than a decade ago unreliable, trade sources said on Monday.

The state owned company informed its customers that it will price all crude such as flagship Tapis on 100 percent dated Brent assessment from oil pricing agency Platts from June 1, they said. June cargoes will start trading this month.

The move would homogenise and simplify a fragmented pricing structure in Asia, user of a third of global crude, extending Brent’s influence as a cross-continent price marker beyond the 70 percent of world supplies that now use it as a reference.

“Brent is growing in Asia, picking up market share against local sweet benchmarks,” Mike Davis, a director of the IntercontinentalExchange Inc told Reuters.

He added that when new fields come on stream, they will need a benchmark.

“We are seeing a trend for more usage of Brent for physical contracts, commercial management, hedging risk,” said Davis, director of market development at ICE Futures Europe.

The change was due to Tapis APPI’s volatility and because it “decouples from the world marker”, a source familiar with the matter said.

A Reuters survey in August last year showed traders expected Brent to replace regional benchmarks such as the Asia Petroleum Price Index (APPI) and Indonesia Crude Price (ICP) by 2012. [ID:nSGE67Q01I]

Crude and condensate from Australia, Papua New Guinea and East Timor are now sold on dated Brent after gradually moving away from APPI in 2009.


Local markers suffer from low liquidity as output declines at aging fields, with prices frequently diverging from global benchmarks, traders and analysts had said.

Volatile prices have deterred refiners from purchasing crude based on the regional benchmarks while sellers are worried that they are not getting the best value for their output.

Hong Kong-based Seapac Services Ltd., manager of the APPI, has twice tweaked the methodology used in assessing Tapis prices to curb volatility. [ID:nL3E7DF089]

The company narrowed the range of prices used in the assessments in May last year and had to set a price band against Brent.

The APPI is used to price more than 1 million barrels a day of crude produced in Malaysia, Brunei and Vietnam.

Output of Malaysian light sweet benchmark Tapis has fallen to around 190,000 barrels per day (bpd) from a peak of more than 350,000 bpd in the 1990s. Most of the output is kept for refining by equity producers ExxonMobil and national oil company Petronas, leaving little for the spot market. (Additional reporting by Francis Kan and Luke Pachymuthu; Editing by Manash Goswami)

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