Some 120,000 barrels a day of new high-quality, low-sulphur oil will start flowing from Asian fields this quarter, putting strong regional crude differentials under some pressure and boosting light product yields.

New Zealand's 50,000 barrels per day (bpd) Tui, operated by Australian Worldwide Exploration; phase one of Murphy Oil's deepwater Kikeh field in Malaysia; and the 25,000-30,000 bpd Puffin run by Australian independent AED are set to come onstream between now and end-September.

Although the fresh barrels are unlikely to fully offset declining output elsewhere in the region, the influx of three new, freely traded crudes within a short span could hit values of competing grades in the thin market.

Of the region's low-sulphur crudes, only 1.0-1.5 million bpd are believed to be regularly traded.

It will kick out some West African crude and some regional crude, and could push the Tapis/Brent spread down a little bit, a seller of rival crudes said, referring to the mid-term impact.

All three light streams will appeal to simpler refiners, as more Asian countries switch to lower-sulphur petroleum products to reduce worsening pollution.

Even Kikeh, the heaviest of the trio with an API gravity of 34.9, has a strong yield of middle distillates and gasoline.

Tui, expected to pump its first barrel later this month as New Zealand's first new field in years, is lighter with a gravity of around 42 API, while Puffin is the lightest at 43.6.


Tui has already traded, with refiner Caltex Australia buying several cargoes at discounts as deep as 50 cents to the regional light sweet benchmark Tapis APPI, traders say.

They expect all three crudes to trade at premiums to Tapis APPI quotes once refiners sample the grades.

The new competition will be most keenly felt by Malaysian benchmark Tapis and Australia's Cossack, the two flagship light sweet grades in the region, traders said.

Kikeh's high gas oil yield will make it an alternative to Tapis, a favorite among refiners such as Indonesia's Pertamina and Thailand's PTT.

Murphy, which will be selling about four cargoes a month once production rises to 80,000 bpd early next year from an initial 40,000 bpd, is expected to market its first parcel within the next two weeks, ahead of a late-August or September launch. Output will plateau at 120,000 bpd in a year.

Petronas, which owns a 20 percent stake in the field, is expected to market its share of the crude.

Naphtha-rich Tui, marketed by equity partner Mitsui & Co. Ltd., and Puffin will throw a shadow on Cossack, as well as Papua New Guinea's Kutubu Light, and regional condensates, which mainly head to Australian and Singapore refineries.

European oil major Total in June won the right to market the one or two cargoes of Puffin to be produced monthly.

The Tapis/Brent Exchange of Futures for Swaps (EFS), a particularly volatile spread due to its thin liquidity, has fallen to around $1.60 a barrel for front-month August and $2.70 for September, down from a record high of $6.15 touched in May, due largely to sharp gains in European prices.

That makes sweet crudes in West Africa and the North Sea, priced off Dated Brent, less competitive for Asian refiners.


The emergence of the new grades is part of a global short-term drift toward lighter, sweeter crudes over the next two years, helped by higher condensate output from Saudi Arabia and Algeria, plus production from the Caspian region.

That will help refiners increase production of higher-value products such as gasoline and diesel after several years in which the global barrel grew more sour due to higher Middle East supplies, causing sweet crudes to trade at a wider premium.

The quality-related pressure is easing a bit, at least on the supply side. On the demand side, of course, we are continuously looking for light products, said David Fyfe, supply analyst at the International Energy Agency (IEA).

Consumer watchdog IEA expects transportation fuel demand in Asia to rise by 4.4 percent per year on average until 2012 and to account for 55.2 percent of total regional demand.

But the extra oil will not go far in meeting Asia's galloping demand growth. Hawaii-based FACTS estimates Asian oil product consumption will rise by 2.8 percent per year between 2007 and 2012, or 4.24 million bpd.

Nor will the rise in crude quality last long.

After Kikeh hits 120,000 bpd next year, the next batch of regional light-sweet crude is due only in 2010. Fresh supplies from Australia's Vincent, India's Mangala, Indonesia's Cepu and China's offshore Penglai oilfields will deliver more difficult to process heavier or acidic grades, mostly for domestic use.

If you look at Asia excluding China, we see a production decline of 50,000 to 70,000 bpd per year for light-sweet crude this year and next, says N.Ravivenkatesh, associate at Houston-based consultancy Purvin and Gertz.

The region's shrinking oil output can be seen from the steady drop in most of Indonesia's fields, the plateau in top producer China and Malaysia's determination to use new offshore fields to offset the 3 percent decline in peninsular production.

China's June oil imports rose 20 percent, year-on year, even as Asia's main fields are declining, and some rather rapidly.

Even if we said an 180,000 bpd increase by next year, there would be no sustained supply overhang, said Al Troner, managing director of Asia Pacific Energy Consulting (APEC).