BEIJING/LONDON (Reuters) - PetroChina Co Ltd will ramp up oil trading in Europe via a joint venture with Ineos in April, letting a five year supply and marketing contract with Morgan Stanley expire at end-March, a source with the venture said on Wednesday.
The expiry is a blow to Morgan Stanley (MS.N), whose revenue from commodities fell for the third consecutive year last year.
PetroIneos Trading Ltd, the London-based joint venture between PetroChina and UK petrochemical maker Ineos Group Ltd INGRP.UL will start crude supply and fuel marketing for two refineries in France and Scotland, the source said.
“PetroIneos Trading will be taking over the refinery business including crude supply and products marketing from 1 April,” the source said.
“The business conducted in PetroChina London will be integrated into the JV gradually after 1 April. But we will keep a business relationship with Morgan Stanley. It will still be a supplier of crude and an offtaker of products.”
Morgan Stanley entered the deal in 2007 with Ineos.
The new role is part of PetroChina’s ambition to double its global trading and marketing of oil — including crude oil and refined fuel — to 8 million barrels per day by 2015 compared with the 2010 level, a target outlined by the company chairman Jiang Jiemin last May.
Asia’s largest oil and gas producer PetroChina (0857.HK) (601857.SS), which started oil trading in 1993, has over the past two decades nearly closed the gap with big league traders such as Morgan Stanley.
It has been expanding Chinaoil, trading unit of Petrochina, in London over the past few years as it negotiated with Ineos over a $1 billion deal to buy 50 percent of Ineos Lavera and Grangemouth refineries with a combined daily processing capacity of 420,000 barrels.
The deal closed in June last year and the joint venture was formed in July. Currently PetroChina has about 100 staff in London, including 20-30 traders, the source said.
The purchase was the Chinese energy giant’s third refinery acquisition after similar investments in Singapore and Japan.
PetroChina’s oil trading scored another year of record profits in 2011, two company trading executives told Reuters, with one pegging the number at 4.5 billion yuan ($711 million). PetroChina does not separately report its oil trading results.
In contrast, commodity trading Morgan Stanley and other Wall Street banks stumbled in the past few years.
Morgan Stanley revenues fell 18 percent in 2011 due to “lower levels of client activity”, the bank has reported, taking its three-year decline to nearly 60 percent. Based on Reuters’ calculations, revenues peaked at around $3 billion in 2008, declining to some $1.3 billion last year, the lowest since 2005.
Competition from new entrants in the European oil market, notably China, India and Russia, has also been squeezing out some established players.
Earlier this week, German oil firm Mabanaft GmbH shut Rotterdam and Houston offices, exiting speculative paper oil trading.
The source with PetroIneos said the two refineries currently process North Sea Forties, Russian Urals and barrels from West Africa and the slate will remain similar even after March.
“It’s logical for PetroChina to take over the job as the purpose of (PetroChina) buying up the refineries is to expand the company’s global trading portfolio,” said a trader with knowledge of the deal.
An Ineos spokesman declined to comment.
Morgan Stanley in London declined to comment. A Hong Kong-based Morgan Stanley spokesman was not able to comment immediately when contacted by Reuters. A PetroChina spokesman would not confirm the take over of the Ineos-Morgan Stanley contract but reiterated the company’s goal of having a presence in the entire oil value-chain.
Despite a weak refining margin environment in Europe, Ineos’s plants are operating at around 90 percent of capacity.
“Refining business is not good in Europe, but the Singapore plant is doing extremely well. So it’s about optimizing the whole system across the regions,” said the second trader.
Editing by Muralikumar Anantharaman, Helen Massy-Beresford and Keiron Henderson