SINGAPORE: Wall Street bank Morgan Stanley has resumed gasoline trading operations in the Middle East after a gap of about 12 months, with the recent lease of 380,000 barrels of storage at the United Arab Emirates (UAE) port of Jebel Ali, sources said on Tuesday.
Morgan Stanley declined to comment.
Traders said the U..bank was likely to use the storage tanks to take a bite out of the fast expanding regional gasoline market, now estimated to be valued at around $60 billion.
Daily gasoline consumption in the Middle East is about 1.4 million barrels, traders say.
"In the Arab Gulf alone you have Saudi Arabia and the UAE, then you look at business coming from just East Africa alone and then there is the wildcard, Iraq. This is a big-volume, big-money game," said a Middle East-based trader who declined to be named as he is not authorized to speak to the press.
"Besides this business is nothing new to them, they are familiar with the region and won’t need to test the waters and build up their trading slowly, slowly."
Morgan Stanley, which leased the Jebel Ali storage sometime in the past month, had previously operated in the region, holding storage assets of up to 1.5 million barrels as recently as 2009, but exited the business after ending its joint-venture partnership with Kuwait’s Independent Petroleum Group (IPG).
The bank had continued to lift millions of barrels of distillate fuels for distribution into Europe.
Risky business
Morgan Stanley’s move to restart trading operations in the Middle East, which is seen as riskier than elsewhere because oil trading in the region is less regulated, is in line with its growing appetite for risk.
In the third quarter, the Wall Street bank generated higher revenues from its commodities business globally, with its Value at Risk (VaR) for the asset class averaging $32 million daily versus $29 million in the previous quarter and $30 million in the third quarter of 2010.
Real earnings from commodities are one of the most closely-guarded secrets on Wall Street, and the VaR is probably the only gauge of the maximum amount of money a bank is willing to lose in a day on the market.
It is one of the few guides to determining how aggressive a bank has been in a quarter for trading a particular asset class, in this case commodities.
Aside from equities, commodities was the only segment of trading where Morgan Stanley took on more risk in the third quarter, its results showed.
For the third quarter, Morgan Stanley said combined revenues from fixed income currencies and commodities (FICC) — another oft-used measure by US investment banks — rose to $3.9 billion in the third quarter, from $2.1 billion in the second quarter and $847 million a year ago.
Morgan and Goldman Sachs have long dominated global energy derivatives trading for decades.
But Morgan Stanley is the only Wall Street bank to have developed a niche in the physical oil market. It has for years run a large business buying, selling, transporting and storing jet fuel and gas oil, and is one of the largest importers into the United States.
