Barclays Capital Entering Shipping Market

Posted by Bull Bear Trader | 6/26/2008 08:16:00 PM | , | 2 comments »

The Financial Times is reporting that Barclays Capital is planning to enter the shipping business. The bank is attempting to increase its commodities exposure by hiring ships on long-term charter to move oil, gasoline, and diesel. As opposed to gaining exposure by taking derivative positions, Barclays hopes to cash in on the prices involved in hiring ships, which have been up more than 50% in the last six months. The move also allows them to support their new venture into the physical trading of oil. Physical trading allows for a more predictable price since you are not at the mercy of the spot market prices.

Of interest is how moving the physical commodity adds a new level of risk to banks hiring a fleet of ships on a long-term basis - the risk of an oil spill. For this reason, some companies go slowly with physical trading, transporting what are called "non-persistent" oils, such as gasoline, which dissipate in the water quickly. Given all the credit problems that banks are already dealing with, it is hard to image any would want to even consider adding additional exposure in this way. In fact, even though such a move is not unprecedented for banks, this may tell us more about the weakened ability of banks to generate revenues using traditional means, such as investment banking and making loans. It also makes you wonder whether the shipping industry has reached a short-term top, and whether some commodities themselves may be nearing a peak. Maybe speculation is beginning to reach a little too far.

2 comments

  1. Scott // June 30, 2008 at 11:08 AM

    So we have a non-user/producer of oil trading the physical commodity...that is speculation. By gaining control of ships, this company could affect oil prices by holding ships they have contracted out of use, driving up prices for both the ships and the oil as they would be acting as a capacity constraint.

  2. Bull Bear Trader // June 30, 2008 at 12:07 PM

    Yes, I believe it is speculation. As you allude to, it also has the potential for abuse.