TOKYO/DUBAI - Energy firm Petro-Diamond Risk Management Ltd said on Monday it will close its global derivatives operations, looking to end its role as market maker in the volatile oil trade hedging business.
Mitsubishi Corp, Japan's top trading house, and the firm's parent, decided to wind down the business on Oct. 29, and soon after began notifying Petro-Diamond Risk clients it will honour all its deals through March 2012, said a London-based official with the unit, who is authorised to speak to the media.
It has yet to decide how deals that mature after that date will be handled, the official told Reuters. They could be handled by other energy traders or separate Mitsubishi entities, depending on the client's preference, the official added.
The official said the company did not rule out the possibility that the subsidiary would be sold to a third party.
Following last year's credit crunch, the group has taken a long hard look at businesses within its portfolio, and just sees Petro-Diamond as a derivatives vehicle that doesn't fit with its portfolio, said the official with Petro-Diamond Risk Management.
It was not immediately known how many staff of the firm that has offices in London, New York and Tokyo, would be affected.
Mitsubishi has another unit, Petro-Diamond Singapore, a separate entity which continues to trade physical oil products.
The divestment of Petro-Diamond Risk Management comes amid wildly fluctuating crude oil prices over the past year and a half.
Global benchmark U.S. crude oil CLc1 raced to a record of nearly $150 a barrel in July last year, before diving to below $33 a barrel in December. This year, it rallied back above $80 last month.
Asked about the move, a source with Petro-Diamond Risk Management, who declined to named as he was not authorised to speak to the media, said:
The short answer is they (Mitsubishi) just felt the risk-reward profile didn't match their business.
The move by Mitsubishi Corp to wind down its risk management business came despite improvements seen this year in Asia's over-the-counter (OTC) fuel derivatives market, after being pounded last year by the credit crunch and high, volatile oil prices.
The steady recovery reached a peak in October, when the region's oil derivatives market saw its best month for 2009 in terms of volumes and profits, due to returning risk appetite spurred by improving financial market sentiment, brokers and traders said last week.
They added that despite oil prices rising back to $80, up more than 70 percent this year, the volatility so far has been sustainable compared to last year's swings, and this helped attract more liquidity. (Additional reporting by Yaw Yan Chong in SINGAPORE, Editing by Ramthan Hussain)