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(Reuters) - The Canadian arm of Macquarie (MQG.AX) has sealed deal to supply crude to a Newfoundland refinery and buy its products, the latest sign of the Australian bank challenging rivals in the physical energy market.
The deal with Korea National Oil Corp's KOILC.UL 115,000 barrel a day refinery in Come By Chance, Newfoundland, is the latest in a series of arrangements by which an investment bank guarantees supply and offtake with a refinery operator, giving it valuable trading opportunities in the cash market.
Macquarie Energy Canada Ltd will supply the refinery from November, replacing an existing agreement with the plant's prior owner, Dutch trading firm Vitol, Harvest Operations Corp, KNOC's Canadian subsidiary, said in a statement.
It is a continuing agreement that has an initial one-year term. No volumes or dollar figures were disclosed.
While Macquarie's ambition to become a major physical player in the U.S. natural gas market has been well known after its purchase of Constellation Energy's trading desk in 2009 and its investment in a planned export terminal, it had not yet made major waves in the oil market, traders say.
Nicholas O'Kane, Macquarie's top global energy trader, told Reuters in June that the bank had spent the past three or four months looking to build up its North American crude trading business, and had opened a Calgary office with 12 people.
Banks have been aggressively looking to beef up physical trading as a way to offset income they will lose as the result of tighter restrictions on proprietary trading. Goldman Sachs (GS.N) has expanded its metals trading desk, and JP Morgan bought the global oil and metals business of RBS Sempra.
The Canada deal comes one year after Morgan Stanley (MS.N), long Wall Street's biggest physical oil trader, and Norway's Statoil secured a similar arrangement with PBF Energy, the private equity-backed firm that bought two refineries in Delaware and New Jersey to become the East Coast's No. 3 refiner.
And Morgan had secured a similar deal with Europe's INEOS in 2007, although its future is now in doubt after Petrochina bought a 50 percent stake in several refineries.
Come-by-Chance is a potentially high-risk, high-reward gambit, as a host of other U.S. East Coast refiners are set to be shut if they can't be sold as margins are crushed between costly Brent-related crude and cheaper Midwest fuels.
Having just completed a $200 million upgrade to increase output of higher-value fuels, the refinery may stand to benefit compared to older plants that haven't been overhauled, offering rich trading opportunities for Macquarie.
Harvest will provide storage tanks for the feedstock and petroleum products and is responsible for vessel loading and offloading, it said.
Reporting by Jonathan Leff in New York and Jeffrey Jones in Calgary; editing by Rob Wilson and David Gregorio