Castleton Commodities International will buy Morgan Stanley's physical oil business, vaulting the Connecticut-based merchant into the big leagues of global crude and fuel traders.
In a long-awaited deal that appears to mark the end of the Wall Street bank's more than three-decade history as a major player in physical oil markets, Castleton will gain several dozen oil tank storage leases, physical oil supply and purchase contracts, and a team of about a hundred traders.
Neither Morgan Stanley nor Castleton released terms of the deal, but analysts estimated the deal to be valued at slightly more than $1 billion. This principally represents the value of oil inventories in storage or transit. The deal will not be material for Morgan Stanley, the bank has said.
The deal "aligns well with our goal of becoming a top-tier, global multi-commodity merchant," William C. Reed II, President and Chief Executive Officer of CCI, said in a statement.
The Global Oil Merchanting unit, long considered the largest and most successful on Wall Street, has traded around 2 million barrels per day (bpd) of crude and oil products over the past five years, and has 45 oil storage leases for some 30 million barrels, mainly in the United States and Europe, CCI said.
About a hundred front-office staff, including traders and shippers, are expected to move to CCI with the transaction, according to a person familiar with the deal.
Morgan Stanley maintains its client-facing oil trading business, including both physical and paper transactions. The bank is also still planning to divest its stake in oil tanker group Heidmar, which was not part of the deal, a source said.
The deal will give Castleton more scale and global scope in the massive oil market, a weaker spot relative to the group's large books in power, natural gas and gas liquids markets.
Castleton, a group spun out of a Louis Dreyfus-JP Morgan venture in 2012 with the backing of famed hedge fund managers including Glenn Dubin and Paul Tudor Jones, said Morgan Stanley's Tom Simpson and Fabrizio Zichichi would lead its global oil trading business.