An unprecedented deal between Russia’s state-controlled Rosneft and Glencore (GLEN:LN)—the world’s largest oil trader—gives Rosneft much-needed cash and positions Glencore to become the world’s largest trader of Russian oil. This is no small deal for a foreign company in Russia.
The deal—sealed in late December--will first see Glencore and another trading major, Vitol, pay Rosneft $10 billion in advance for future Russian oil. Under the deal, What does $10 billion buy Glencore and its deal partner Vitol? Quite a lot: they will take 67 million tons of Rosneft's oil exports for the next five years.
The cash will help Rosneft recoup after acquiring TNK-BP.
To many analysts, this is a perfect marriage of one of the world’s largest producers and the world’s largest trader. And no one expected the deal to close so quickly. Glencore had long attempted such a move but had failed repeatedly to make it happen. Apparently, though, some shaky relationships have recently been strengthened; namely that between the circle around Russian President Vladimir Putin and a Russian aluminum tycoon, Oleg Deripaska, who has close ties to Glencore.
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The marriage of Glencore and Vitol in this partnership is also one of new convenience: The two are major competitors but in this deal they are jointly borrowing $10 billion for the Rosneft deal. This is unprecedented. Glencore, however, is leader in the relationship and will bear the greater borrowing burden.
Where does this put Glencore? At the top of the Russian oil trading list. The Russian oil futures represent almost one-tenth of Glencore’s entire global holdings of 2.5 million barrels per day. Rosneft will benefit significantly, too, as Russian oil is about to become more attractive on the global market.
By Charles Kennedy for Oilprice.com