Morgan Stanley Extends Diesel-Buying Spree Amid Supply Surge

Aug 29, 2014 12:37 pm ET

(Updates with Morgan Stanley’s purchases today from first paragraph.)

Aug. 29 (Bloomberg) -- Morgan Stanley extended purchases of diesel in Europe to a 43rd day amid the region’s biggest stockpiles in more than two years.

The bank bought 77 percent of the 807,450 metric tons that traded on the diesel barge market in July and August in a pricing window operated by Platts, a unit of McGraw Hill Financial Inc., brokers’ data compiled by Bloomberg show. The bank purchased every day since July 1, including 18,700 tons today.

While Germans will buy diesel and gasoil for heating this winter, the European country’s supplies will be replenished by a glut in Amsterdam, Rotterdam and Antwerp where the fuels are traded, according to Olivier Jakob, the managing director of Petromatrix GmbH, a consulting firm in Zug, Switzerland. Prices are in a pattern called contango that means later-month costs exceed immediate ones. That can create an incentive for traders to buy and store.

“The curve is attractive to storage, so if you have the flexibility and the empty tanks then it makes sense to be stockpiling now,” Robert Campbell, head of oil products research at Energy Aspects Ltd., said by phone from New York Aug. 27. “Despite the contango there is an unwillingness on the part of end-consumers to buy much, so end-user storage is not that high but ARA levels are.”

Campbell spoke in general terms and declined to speculate specifically on Morgan Stanley’s reasons for the trades. Hugh Fraser, a London-based spokesman for the bank, declined to comment.

Heating Oil Glut

Combined inventories of diesel and heating oil in independent storage in Antwerp-Rotterdam-Amsterdam, Europe’s oil-trading center, are at their highest since March 2012, according to PJK International BV. Heating oil storage tanks at commercial premises in Germany are 37.7 percent full, the second highest for this time of year since Ipsos Loyalty GmbH began recording levels in 2011. Diesel and gasoil have become increasingly interchangeable in Europe because of the sulfur limits imposed on the heating fuel, according to Jakob.

The price of diesel barges in northwest Europe has dropped by $51 a ton, or 5.5 percent, since the start of July to $880.25 a ton yesterday, according to data compiled by Bloomberg.

ICE gasoil futures, against which European diesel is priced, are trading $10 a ton higher for January than September.