Citigroup Inc (C.N) is planning to start physical Canadian crude oil trading. Citigroup is setting itself up to jockey with banks and traders for filling the vacuum left by other Wall Street giants offloading physical commodity businesses.
It is believed that Citigroup is in the process to prepare for physical trading of the most liquid Canadian grades. This may include Western Canada Select heavy blend, the de facto Canadian benchmark, and sweet grades. The expansion of Citigroup Inc into the physical market bucks the recent trend of big U.S. banks retreating from commodities trading with tighter government regulations eating into profits.
In another development, JPMorgan Chase & Co (JPM.N) is preparing to sell its physical commodities business, and this includes a collection of long-term leases on more than 6 million barrels of storage tanks in Hardisty, Alberta. Moreover, Morgan Stanley (MS.N) is selling its global physical oil trading business, including its Canadian division, to Russian state-run oil company Rosneft (ROSN.MM).
“There has been this negative attention but it seems there’s still space to maneuver and to operate profitably, and to serve the needs of their clients,” said Raymond James analyst Daniel Marchon. “Citi would not be getting into this if it was not important to their institutional clients.”
According to the Canadian Association of Petroleum Producers, Canadian crude production is expected to more than double to 6.7 million barrels per day by 2030 that would make the physical market a potentially lucrative source of trading revenue.
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