Morgan Stanley Said to Seek Supertanker to Store Oil (Update2)
By Alaric Nightingale and Todd Zeranski
Jan. 15, 2009 (Bloomberg) — Morgan Stanley is seeking a
supertanker to store crude oil, joining Citigroup Inc. and Royal
Dutch Shell Plc in trying to profit from higher prices later in
the year, four shipbrokers said.
The bank has yet to find a suitable vessel, said one of the
brokers, all of whom asked not to be identified because the
information is private. Carlos Melville, a spokesman for Morgan
Stanley in London, declined to comment.
Theres a lot of people looking for storage, Denis
Petropoulos, London-based head of tankers at Braemar Shipping
Services Plc, the worlds second-largest publicly traded
shipbroker, said by phone.
Banks and commodity traders are seeking new ways to make
money after the Standard & Poors 500 Index fell by the most
since 1937 last year and crude oil prices dropped more than $100
a barrel from their peak. Companies including Koch Industries
Inc. and BP Plc are hoarding enough crude at sea to supply the
world for almost a day.
Frontline Ltd., the worlds biggest owner of supertankers,
yesterday said about 80 million barrels of crude oil are being
stored in tankers, the most in 20 years. A purchaser could buy
oil now, keep it for months at sea and fetch better prices by
selling oil futures that are higher than the spot price.
The so-called contango pricing structure has been caused by
excess oil supply as demand slows and speculation that output
cuts by the Organization of Petroleum Exporting Countries will
reduce the glut later this year.
Tanks Filling Up
Slumping U.S. oil demand means tanks are filling at Cushing,
Oklahoma, the pricing point for the benchmark West Texas
Intermediate grade. Futures contracts indicate WTI will gain an
average of about $2.15 a barrel a month until December.
Supertanker storage deals are being done at about $75,000 a
day, according to Petropoulos. Assuming the ship has a 2 million-
barrel cargo, that works out at $1.12 a barrel over a 30-day
period. Traders also need to pay financing and insurance costs.
Phibro LLC, Citigroups commodities trading unit, has the
carrier Ice Transporter stationed off north Scotland, according
to people familiar with the matter. Shell, Europes largest oil
company, has booked the supertankers Leander and Eliza.
Oil traders hired two more ships to store North Sea crude
off Scotlands Orkney Islands. The 2 million-barrel supertanker
Luxembourg is scheduled to arrive at Scapa Flow on Jan. 21 while
the 600,000-barrel transporter Atlantic Galaxy is already there,
said Captain William Sclater, operations manager at the port.
Oil Grades
The easiest types of oil to buy for the trade are likely to
be either WTI or the North Sea grades Brent, Forties, Oseberg or
Ekofisk. Thats because they are the ones used to settle the
most-traded futures contracts.
Other oils, such as those from the Middle East and Africa,
are usually bought and sold at prices related to the main
European and U.S. grades. Because those prices fluctuate, it
means traders assume an extra risk by hoarding them.
Morgan Stanley owns half of Heidmar Inc., which operates
smaller oil tankers. Heidmar hasnt had demand for its tankers to
store oil, probably because they arent the largest supertankers
that investors need for the contango trade, Tim Brennan, the
companys chief executive officer, said by phone Jan. 8.
