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Russian Rosneft to Acquire Morgan Stanley Unit

Russian state-owned Rosneft has announced plans to acquire Morgan Stanley’s unit for storing, trading and transporting oil products.

While the deal still requires approval from the US Senate Foreign Investment Committee, which is expected to be forthcoming in the first half of the New Year, it will represent Rosneft’s grand debut onto the global oil trading scene.

Financial terms of the transaction were not disclosed, but news agency reports and company press releases confirmed that the transaction would not include Morgan Stanley’s current client business related to oil and products merchanting, its ownership stake in TransMontaigne or any of its commodities operations outside of the oil and oil products sector.

Rosneft Chief Executive Igor Sechin said the transaction “would boost the company's presence on the global oil markets and help to increase the value of Rosneft's own oil output as well as open up new revenue streams by providing access to third-party crude oil and products”.

As part of transaction, some 100 executives in the US, Britain and Singapore will move to Rosneft.

Rosneft, controlled by the Russian state, is one of the world’s largest petroleum companies, even out-producing US supergiants like Exxon Mobil in the last quarter. During the fourth quarter of 2013, Rosneft produced more than 4.8 million barrels of oil equivalent per day.

The Morgan Stanley divestiture comes as banking and securities regulators move to bank proprietary trading at financial institutions, threatening to end Wall Street’s dominance of commodity hedging. The tougher trading regulations, known as the Volcker Rule, were finalized on 10 December and will prohibit proprietary trading by banks with the end goal of drawing a line in the sand between commercial banking and investment banking.

Banks were already inching out of commodities trading before the 10 December decision. According to earlier media reports, on 5 December, Deutsche Bank said it would downsize its commodities trading due to expected regulatory changes, and earlier in July, JP Morgan announced plans to spin off its physical commodities trading.

Analysts say the deal is of major significance for Rosneft as it will give it the ability to trade without intermediaries and will likely boost its revenue further.

While Senate approval is expected in the first half of next year, and most believe it will go through, there are some in the Senate who view the deal as a potential threat to the US economy and energy market integrity.

In an email sent to Reuters, US Senator Edward Markey said that "the U.S. Committee on Foreign Investment must closely review this proposed acquisition .... to ensure that a Russian state-owned oil company cannot manipulate our markets and harm the United States and its citizens."

By. Joao Peixe of Oilprice.com

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