(Reuters) - Investment banks are big players in the energy markets, where an oil price boom has increased demand from a whole range of companies for products that can offset the risks of volatile prices.
The banks also can trade on their own account, so-called proprietary trading, where they bet their own cash in the oil futures and over-the-counter markets.
Some also make investments in energy-related infrastructure assets, such as pipelines, transportation and storage facilities.
The top three players are Goldman Sachs GS.N, Morgan Stanley MS.N and Barclays Capital BARC.L, the investment bank arm of UK bank Barclays Plc.
Goldman Sachs and Morgan Stanley, once know as the “Wall Street refiners”, have been active for two decades, Barclays Capital has built its business over the past 10 years.
Banks are increasingly active in the physical oil markets, where they say they need a presence to satisfy client needs and to gain access to information.
Both Morgan Stanley and Barclays Capital, for example, trade physical crude oil.
The futures markets where oil is traded include the New York Mercantile Exchange NMX.N, the world's biggest energy futures market, and ICE Futures Europe, owned by Atlanta-based Intercontinental Exchange Inc ICE.N.
Oil and other energy derivatives are also traded over-the-counter. These markets are estimated to be between 10-15 times bigger than the ICE and NYMEX.
Other banks have expanded in energy and commodities, but fallout from the credit crunch has forced some of the newer participants to cut back or pull out.
Lehman Brothers LEH.N has been expanding as well as Citi C.N and Deutsche Bank. French banks BNP Paribas BNPP.PA and Societe Generale SOGN.PA have also have a presence.
Some of the banks’ recent moves in energy and commodities are listed below.
* BANK OF AMERICA CORP BAC.N early this year shut its commodities and energy trading desk in London, becoming one of the first big investment banks to trim operations.
The U.S. bank said it would close its London commodities and trading desk and centralize operations in New York.
* BARCLAYS CAPITAL BARC.L - The investment bank arm of the UK banking group plans around a 30 percent increase in staff in its commodities business in the next two years.
The bank currently has around 250 staff in energy and other commodities, spanning oil and refined products, metals, power and gas, coal, agriculturals, emissions and investment products.
It has entered into a 5-year partnership with China Development Bank CHDB.UL to develop a commodities business in the country.
The firm recently started trading physical crude oil and has also entered the physical gasoline barge market in Europe and is also active in diesel trading.
* CITIGROUP C.N - The U.S. bank has been building up commodities in Europe over the past couple of years.
Its emphasis has been on newer markets such as freight, power and gas, carbon emissions and coal, but the firm also trades oil, precious and base metals and agricultural markets.
* CREDIT SUISSE CSGN.VX - The Swiss bank started expanding in commodities in a partnership with physical commodity trading group Glencore that was set up in early 2006.
In March, the bank hired 8 new staff, including 4 for its oil trading business, based in London <ID:nL10814702>
* DEUTSCHE BANK DBKGn.DE - The German bank began expanding its commodities business in late 2006 and has been adding staff and entering more markets, including carbon emissions, gas storage and transportation.
David Silbert, who was previously with Merrill Lynch MER.N, is global head of the business, which recently opened a new office in Houston in the United States.
* GOLDMAN SACHS GS.N - The U.S. investment bank's second quarter results published on June 17, showed its risk-taking in commodities had doubled from the year-ago period.
The bank’s average daily Value at Risk for commodities reached $48 million in the second quarter to May 30, up from $38 million in the first quarter and $24 million in the quarter to May 25, 2007.
Value at Risk measures the potential loss in value a bank might face in any one day from its trading positions in commodities. <ID:nN18482625>
* JP MORGAN CHASE & CO JPM.N - The U.S. investment bank will begin trading physical oil by the year-end, as part of plans to expand commodities and energy trading.
The U.S. bank added 50 people to its commodities and energy trading and investment team last year and aims to hire a similar number this year, giving it a team of 450 globally.
JP Morgan is taking on staff from the energy business of Bear Stearns, the rival investment bank it is in the process of taking over.
* MERRILL LYNCH MER.N - The U.S. investment bank began trading physical oil on a limited basis last year and has around 70 people globally specializing in oil and oil product trading.
The firm trimmed some energy traders and back-office staff in April in the United States and Europe.
* MORGAN STANLEY MS.N - The U.S. firm's second quarter results on June 18 revealed lower revenues from commodities.
“We took contrarian bets in the energy sector,” Morgan Stanley’s Chief Financial Officer Colm Kelleher said. “We felt it was the right trade. It didn’t work.”
Morgan Stanley’s Value at Risk in commodities rose to $39 million at the end of the second quarter, versus $38 million in the first quarter to February 29 and $34 million in the second quarter to May 31, 2007.
* UBS - The Swiss bank UBSN.VX began a build up in energy and commodities but has now scaled back some expansion plans.
It had expanded its crude oil trading operation into Europe, after trading crude in North America since 2005 and subsequently launched power and gas in Europe.
But in January of this year, the bank announced that the European power and gas business would focus on northwest Europe and the UK and that it would place more emphasis on client business, reducing its proprietary trading activities in European power and gas.
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