Dec. 16 (Bloomberg) -- Malaysia’s Tapis crude oil, once the world’s most expensive grade, is losing its status as a benchmark for Asian refiners buying grades from Australia, Indonesia and Vietnam because of declining output.

Oil-pricing service Platts, a unit of McGraw-Hill Cos., will today use Dated Brent, a crude produced in the North Sea, to assess the values of Asian grades, the company said in a statement to its users. The change comes as traders raised concern about Tapis’s suitability as a marker because of a drop in spot market transactions.

The shift means prices for Asian crude oil including Australia’s Cossack, Vietnam’s Bach Ho and Indonesia’s Minas will be tied to a grade produced several thousand miles away. The decline in Tapis output has left only one spot deal a month to assess prices compared with 70 a month for the grades that make up Brent, already a benchmark for two-thirds of global oil including types from Nigeria, Angola and Russia.

“It’s not a perfect situation as there are issues with Tapis and also with Brent and about how relevant it is to Asia,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “There are these problems with Tapis so the best alternative is Brent for lack of anything better.”

Traders have started shifting their pricing to Brent. In June, Woodside Petroleum Ltd. sold a cargo of the low-sulfur Vincent grade from Australia at a discount of $15 a barrel to Brent.

Output Decline

“One of the things we found out when we made our announcement that we would launch Asian Dated Brent was that the industry was already doing that,” Jorge Montepeque, the global director for market reports at Platts, said in a Dec. 12 interview in Singapore.

Brent’s relevance for pricing Asian oil supplies rests in its global nature, particularly as the grade is used as the benchmark for West African supplies that are exported to China, Montepeque said.

“Everything somehow feeds back and somehow affects Dated Brent,” he said. “For the Asian grades, if the fundamentals are different from the global fundamentals then the spreads versus Dated Brent will shrink or expand.”

There are other options for assessing prices. The Asia Petroleum Price Index, a source that uses prices submitted by the index members, was one of the first benchmarks for regional crudes. Indonesia and Vietnam use an average of Platts and APPI levels for their sales.

Premium Grade

Tapis’s replacement as a benchmark follows declines in the grade’s output. Malaysian state oil company Petroliam Nasional Bhd. may stop selling the grade on yearlong contracts because of falling production and a decision to use the oil in domestic refineries, Platts reported on Dec. 3, without saying where it got the information.

The Tapis field, off the coast of Terengganu in Peninsular Malaysia, was discovered in 1969 and started production in 1978.

Output has fallen to about 300,000 barrels a day from a peak of 400,000 barrels a day about a decade ago, according to Energy Intelligence Group, which publishes industry newsletters. Exxon Mobil Corp. has a 30 percent stake in the area while Petroliam Nasional 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. Most types of crude oil from the Middle East contain 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.

Brent Blend crude oil has an API gravity of 37.9 degrees and 0.45 percent sulfur.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

Last Updated: December 15, 2008 22:04 EST