Spread Still Increasing For Malaysian Oil Benchmark As Demand For Low-Sulfur Product Builds - B'Berg

[hatrack]

June 26 (Bloomberg) -- Malaysia's Tapis, the most expensive oil benchmark in the world, may appreciate further relative to Brent and West Texas Intermediate crudes because of demand for low-sulfur grades to produce diesel and gasoline in Asia. Tapis has averaged $5.76 a barrel more than Brent this year, compared with $3.54 in all of 2006. The spread may stay near that level through next year, Commonwealth Bank of Australia analysts Tobin Gorey and David Moore said in a June 14 report.

Demand for Tapis and other low-sulfur, or sweet, grades has increased as countries including Indonesia, Thailand and Vietnam lowered the amount of the pollutant allowed in motor fuels. Tapis is produced off the east coast of Peninsular Malaysia by Exxon Mobil Corp. and Malaysia's state oil company, Petroliam Nasional Bhd. ``Until the refining capacity catches up with the products demanded, that puts a premium on the easier-to-refine grades of crude,'' Gorey said in a telephone interview today. ``This will be with us easily until 2008.''

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 the increased investments needed to refine crude from the Middle East, which contains a higher proportion of sulfur and other pollutants.

The Tapis field was discovered off the coast of Peninsular Malaysia in 1969 and started production in 1980. Output is about 300,000 barrels a day from platforms in the South China Sea. Exxon Mobil has a 30 percent stake in the area and Petroliam Nasional, or Petronas, holds the rest.

EDIT

http://www.bloomberg.com/apps/news?pid=20601072&sid=aQ6JH.w5UlNY&refer=energy

FYI, Tapis is $78.06/bbl for June cargoes, and the last time I looked, WTI was at about $69.