Morgan Stanley May Run Larger Tankers for Oil Trades

Monday, February 26, 2007
Morgan Stanley plans to expand its oil tanker business as global demand for crude rises, according to two people briefed on the discussions, according to Bloomberg. The company is considering operating suezmaxes, 1 million- barrel vessels that would be the largest Morgan Stanley controls, said the people, who declined to be identified because the plan is still being debated. The ships often haul crude from West Africa and the Black Sea to the U.S. and Europe. Morgan Stanley, which has traded crude oil since 1984, wants to bolster its shipping unit to compete with companies such as Glencore International AG and Vitol Group. The New York-based company purchased a tanker operator last year for $200 million. Taking control of larger ships would help ensure the bank has sufficient quantities of crude to support its trades.

Morgan Stanley is the world's biggest trader of oil derivatives, according to rankings compiled by Risk magazine. It had more money at risk trading commodities than equities last year, according to an annual filing. So called value-at-risk, or the estimated amount its positions could lose in a day, was $30 million for commodities on average in the year to Nov. 30 and $28 million for equities, the filing showed. No other banks operate oil tankers, said Nikos Varvaropoulos, a tanker broker for Optima Shipbrokers in Athens. ``It gives them the flexibility to target markets where there's a short-term demand that might have a higher The ships would be run by the Heidmar Group, a Connecticut- based shipping company Morgan Stanley bought in September. As the operator of the vessels, Morgan Stanley doesn't own the assets so it doesn't carry the risk of their value depreciating. The Heidmar acquisition gave Morgan Stanley access to a fleet of 87 smaller tankers, with the biggest capacities approaching 843,000 barrels. The purchase price was disclosed in a regulatory filing Oct. 6. Morgan Stanley does not disclose how much it uses the Heidmar fleet, Mark Lake, a spokesman for the bank in New York, said. Source: Bloomberg

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