Morgan Stanley, the U.S. securities firm that has traded crude oil since 1984, plans to expand its shipping business after buying a tanker company last year for $200 million, according to two people briefed on the proposals.
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, the world's second-largest securities firm, wants to bolster its shipping unit to compete with companies such as Glencore International AG and Vitol Group. Taking control of larger ships would help ensure the bank has sufficient quantities of crude to support its trades.
``Morgan Stanley is everywhere, but the physical presence is the one big thing missing in their book,'' Anthony Nunan, deputy general manager for international petroleum business at Mitsubishi Corp. in Tokyo, said by telephone. ``The physical business is getting bigger but more competitive.''
Carlos Melville, a Morgan Stanley spokesman in London, declined to comment on the plans.
By having more oil tankers, a trader would be able to buy more oil if it wanted the underlying price to go up, or sell more if it wanted the price to fall, boosting profit, according to Nunan. The price at which most derivative contracts are settled is determined by the price of the underlying oil.
Flexible Storage
Morgan Stanley is the world's biggest trader of oil derivatives, according to rankings compiled by Risk magazine. 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 price,'' said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh. ``It gives them floating storage so they can deliver to anyone, anywhere in the world.''
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.
Private Shipping
Morgan Stanley does not disclose how much it uses the Heidmar fleet, Mark Lake, a spokesman for the bank in New York, said.
The bank rarely ships physical crude oil, according to Jean- Francois Vincke, a freight trader for Riverlake Shipping SA in Geneva. When the bank wants to ship refined oils the vessel booking is discussed privately with Heidmar, making it impossible to judge how much Morgan Stanley uses its current fleet, said Truls Dahl, a tanker broker for Fearnleys AS in Oslo.
Suezmaxes carry the name because they're the biggest tankers that can navigate Egypt's Suez Canal when fully loaded. They cost about $80 million, according to Fearnleys, a shipping broker.
``They don't want to be caught with a cargo in the market place and have freight rates destabilizing their trading activities,'' said Sverre Bjorn Svenning, a director at Fearnleys.
A larger class of tanker, called Very Large Crude Carriers, or VLCCs, can transport more than 2 million barrels of oil.
A bigger fleet of ships gives an owner more bargaining power over hiring prices. Heidmar doesn't have to disclose how much the carriers cost to hire, or who is buying the cargo. Heidmar also ships oil products such as gasoline, naphtha and jet fuel.
To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net.
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