Price boom draws more banks deeper into energy

By Jane Merriman - Analysis

LONDON (Reuters) - High oil prices and booming commodity markets have started a new goldrush into the sector that will see more banks chartering tankers and renting oil storage facilities.

Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) and Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) have dominated in energy and commodities for more than two decades and were even known as Wall Street refiners.

The newcomers such as Lehman Brothers and Bear Stearns are eager for a share of global revenues from this sector that reached an estimated $11 billion last year, up from around $7 billion in 2005, according to estimates included in a Credit Suisse research report.

They want to capitalize on a surge in demand for products to hedge volatile commodity prices, or to gain exposure to energy or other commodities as an investment.

Firms have tried before to gear up in this area, but many preferred to trade financially rather than physically.

This time may be different as several new players are preparing to enter the physical trade in crude oil and many already trade gas.

"Higher volatility has generated more hedging needs from banks' traditional customers as well as more arbitrage opportunities for those engaged in arbitrage trading strategies," said Amine Bel Hadj Soulami, global head of commodity derivatives at BNP Parbas (BNPP.PA: Quote, Profile, Research, Stock Buzz).

"And being active in the physical market helps you better understand the dynamics of the market - what is driving supply and demand."