Morgan Stanley withdraws from Platts oil window

By Luke Pachymuthu

SINGAPORE (Reuters) - Energy trading heavyweight Morgan Stanley withdrew from a half-hour oil trading window in Asia on Thursday, two industry sources said as credit risk hit liquidity in cash energy markets.

Morgan's withdrawal came after energy price benchmarking agency Platts placed it under review because of counterparty concerns about its credit status, the sources, who declined to be identified, said.

The Platts review does not stop Morgan Stanley trading oil, but means that its bids and offers will not be taken into account during the daily half-hour "window" during which Platts assesses prices in over-the-counter oil markets.

"Counterparty acceptance is a huge problem right now in commodity markets too," said Jorge Montepeque, Platts' global director of market reporting, at a conference in London.

"We have situations where entities in the oil industry will not trade with a bank."

Montepeque declined to comment on Morgan Stanley. A spokesman for Morgan Stanley in London also declined comment.

Rather than risk a possible public test of its credit acceptance among counterparties in an increasingly anxious oil market, Morgan Stanley asked its brokers in Singapore not to put prices into the Platts system, three brokers with different companies told Reuters.

But Morgan Stanley, one of the two biggest oil derivatives traders, continued to participate in over-the-counter markets through the day and there was no suggestion that it was withdrawing from OTC trade.

Being blocked from the window will reduce the bank's influence on Platts prices, the benchmark for physical OTC trade across world oil markets.

'MASSIVE FOCUS'

The move by Platts, a unit of McGraw-Hill Companies Inc, comes at a time of escalating concerns over counterparty risk across commodity markets as the credit crisis claims once-mighty financial institutions.

Unlike the futures markets, in which all trades are backed by a clearing house, cash and over-the-counter energy trade is usually bilateral.

"Clearly there's massive focus on counterparty credit risk," a director at a bank in New York said.

"We have not had any issue with clients pulling away, but a lot of people are clearing deals as opposed to doing bilateral deals."

Trading activity was also affected in other energy markets because of credit concerns.