Wall Street bank Morgan Stanley has purchased 13 million barrels of jet fuel via supply deals from North Asian refiners for 2010 and more than doubled its fuel storage capacity in Asia, traders said on Tuesday.

Morgan was expected to move most of the fuel from these deals into the US which is a key supply outlet for the US bank, traders said.

It was not clear at what price the deals with South Korea's S-Oil Corp and Hyundai Oilbank were concluded, traders said.

Still, traders pegged in a range of 50-70 cents below Singapore spot quotes, on a free-on-board (FOB) basis, in line with recent concluded trades.

Under the supply contracts, the bank is seen taking two Medium-Range (MR) jet cargoes -- of about 297,600 barrels each, per month from S-Oil and at least one similar sized cargo per month from Hyundai Oilbank.

It is also taking two cargoes totalling 595,200 barrels per quarter from Taiwan's CPC.

Morgan Stanley, one of the largest importers into the US, is the only financial institution to have developed a niche in the physical oil market and has for years run a large business buying, selling, transporting and storing jet fuel and gas oil.

New storage additions

Morgan has also more than doubled its fuel storage capacity in Asia to 2.5 million barrels. Storage capacity gives traders flexibility to keep barrels when prices are cheap and sell when prices are high.

The US bank was likely to use its expanded capacity to strengthen its trading plays in emerging demand centres in Asia, the Middle East, North and East Africa, traders said.

The US bank signed a six-month contract in January to lease more than one million barrels of storage at the Horizon Terminal at Singapore's Jurong Island, traders said.

In addition to its storage capacity in Asia, Morgan Stanley leases about 500,000 barrels of tankage in the UAE port of Fujairah. That storage is leased with Kuwait's Independent Petroleum Group (IPG) under a joint-venture gasoline trading agreement.

"This really brings a nice synergy to their business, incremental growth and fresh business is going to be coming from the emerging countries," a Middle East based trader said.

Demand from countries outside the Organisation for Economic Cooperation and Development (OECD) block was expected to remain flat this year while non-OECD countries were seen bolstering demand, the International Energy Agency said last month.

Contango play

Access to additional storage would give more volume for Morgan Stanley to play the market contango, an oil price structure when barrels for delivery in the future cost more than barrels for delivery soon, traders said.

"Any additional storage is only going to offer you greater flexibility when trading," a Singapore based trader said.

"And in a market which is still carrying a lot of surplus oil, you will need all the storage you can get to make money on the contango."

As global energy demand waned in 2008-2009 with the economic slowdown, traders pumped tens of millions of barrels of oil into storage, hoping to sell them later at profit.

The trade play has worked for many, as they cashed in on the rally in oil prices to a peak over $80 last year from a low of under $33 a barrel.

The market structure was expected to last for some time, said David Kirsch, director of market intelligence at PFC Energy in Washington.

"The contango reflects the weak demand situation in the market and as such should likely remain throughout 2010," he said. "There is no reason to suggest a substantial tightening of the time structure in the coming quarters." – Reuters