U.S. merchant refiners take oil trading back in-house

NEW YORK, Oct 9 – Independent U.S. refiners are taking back control of their crude supplies just a few years after outsourcing trading to Wall Street banks and bigger companies, hoping to capture more profit from a global market in flux.After the financial crisis of 2007-2009, a number of ailing U.S. refineries were sold to investors such as Carlyle Group and Delta Air Lines Inc, which lacked the credit agreements or oil trading expertise to efficiently supply their new plants. So they struck deals with the likes of Morgan Stanley and BP to find and purchase crude on their behalf.But the unexpected U.S. shale oil boom has upended the industry, leaving refiners looking inward for crude from places such as North Dakota and Wyoming instead of scouting for barrels in Africa or Europe. It has also caused dramatic flux in domestic prices and a vast expansion of infrastructure, opening up opportunities for nimble traders.So now, many independent refiners are taking their trading arrangements in-house, shedding old deals, hiring new traders and adding new competition for the middlemen and logistics firms that have profited from the shale boom.On Tuesday, Philadelphia Energy Solutions LLC, the biggest refinery on the East Coast, became the latest to join the trend, severing a two-year-old supply and logistics agreement with JPMorgan Chase & Co in favor of a pure inventory and capital finance arrangement with Bank of America Corp.The switch was initially triggered by JPMorgan’s decision to quit physical trading, making it the latest bank to bow out of commodity markets amid regulatory pressure. That trend is another reason refiners are looking to trade for themselves.But PES, which is backed by Carlyle, was also seeking greater flexibility in its trading and logistics operations, as well as a financial partner that would not compete with it in markets, according to a source. With the deal, PES will take control of its own logistics, previously handled by JPMorgan.“These refiners are seeing a lot of profit for the middle man, and they are saying to themselves ‘why shouldn’t we capture that profit,’” said Houston University professor Edward Hirs, an expert in energy finance.“So, they are hiring bright people, with MBAs and experience, to do it.”Others have already done so.This past summer, PBF Energy – run by Thomas O’Malley, a legendary refinery investor who once ran energy trader Phibro – ended the last part of a deal with Morgan Stanley.Even Delta Air Lines’ Monroe Energy division, which runs a refinery in Trainer, Pennsylvania, has sought to improve its supply options, scotching a supply deal with BP and chartering its own U.S.-flagged tanker. It also hired Hugo Zagaria, a senior trader at Plains All American for the past decade, to run its refinery supply operations.

via U.S. merchant refiners take oil trading back in-house | eaglefordtexas.com.

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