Malaysia Petronas proposes new Asian crude benchmark -sources

Reuters

* Petronas moots idea of platform to trade basket of crudes

* New Asia crude price marker aim at reflecting fundamentalsin region (Adds plan for Asia crude futures, quotes)

By Florence Tan and Jessica Jaganathan

SINGAPORE/KUALA LUMPUR, Sept 11 (Reuters) - Malaysia stateenergy firm Petronas is in talks with producers, buyers andtraders on setting up a new mechanism to price oil produced inthe Asia-Pacific to better reflect regional supply and demand,sources familiar with the matter said.

The plan comes two years after the second largest oilproducer in Southeast Asia switched to dated Brent pricing after dropping a more volatile Asian price marker. That move alsoprompted Vietnam and Brunei to change to the dated Brentbenchmark published by pricing agency Platts.

Petronas is studying several options including working withan exchange in Singapore to start a futures contract based onfour Malaysian crude grades - Labuan, Miri, Kikeh and Kimanis,one source said.

"It's more to reflect regional supply and demand moreaccurately," a second source said. "Dated Brent sometimes can bedetached from the regional market."

The four Malaysian grades will have a total capacity of justover 300,000 barrels per day (bpd) next year when Kimanis comesonstream and this could rise to nearly 400,000 bpd in 2016 whena new field starts operation.

Petronas officials were not available to comment on anytalks about a new regional price benchmark.

Dated Brent is underpinned by a dwindling pool of four NorthSea crudes - Brent, Forties, Oseberg and Ekofisk (BFOE) - andoften spikes whenever the main crude stream Forties suffers anoutage. The marker weakens whenever demand falls in Europe suchas during refinery maintenance seasons.

Petronas has mooted the idea of the new price marker toother producers in the Asia Pacific as well as refiners andtraders, the sources said on the sidelines of a major oilgathering in Singapore.

"They want to move away from dated Brent pricing as theyfeel it doesn't accurately reflect the quality of their crudes,"said a source with an Asian oil firm involved in the talks.

Brent has a higher sulphur content than most Malaysiangrades.

Petronas' renewed interest in a new crude marker could alsostem from a potential rise in its output when its new oilterminal in Sabah starts operation later this year, a fourthsource said.

TALKS OPENED

Petronas has started talks with regional producers such asIndonesia and Vietnam to get them involved and provide a biggerbasket of crudes to attract participants, another source said.

A source from one of the regional oil producers said hiscompany was waiting for more details from Petronas on thepricing mechanism.

The Indonesia Crude Price (ICP) remains the only regionalmarker after Petronas dropped the Asia Petroleum Price Index(APPI) in 2011, two years after Australian producers moved todated Brent.

Asian crude markers suffer from low liquidity due toproduction declines at mature fields, with prices frequentlydiverging from global benchmarks.

Petronas' move to the Brent benchmark at the time was toboost transparency by putting Asian crude on a common platformwith growing imports of rival Brent-linked sweet grades from theAtlantic Basin, Central Asia and Latin America.

But Brent is still viewed as a European benchmark for oilproduced thousands of miles away from Asia.

Buyers and producers remained cautious. Several exchangeshave launched crude and oil products futures in Asia that havefailed to attract traders.

"It'll be an uphill climb because so many other people alsowant to do their own benchmarks," the second source said.

In China, the Shanghai Futures Exchange has announced plansto launch crude oil futures, while Russia also nursed theambition of making its ESPO crude the Asia benchmark. (Reporting by Jessica Jaganathan and Florence Tan in SINGAPORE,and Niluksi Koswanage in KUALA LUMPUR; Editing by William Hardyand Tom Hogue)

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