Swiss-based commodities trading and mining giant Glencore is in advanced talks to sell a 51 per cent stake in its oil products storage business to China’s HNA Innovation Finance Group. If completed, the deal will see the two companies form HG Storage International.
The companies have agreed to a three-year lock-up period, which signifies “a mutual agreement to a long-term partnership.”
"HG Storage brings together Glencore's expertise in the petroleum products storage business and extensive market knowledge with HNA's global reach and strong position in Asia," Glencore’s Alex Beard said in a statement. "HG Storage's high quality assets are well positioned to take advantage of the future opportunities we expect to be created by the strong market fundamentals for the sector. We also look forward to exploring further potential opportunities for cooperation with HNA in areas of mutual interest."
For Glencore, the priority over the last couple of years has been reducing debt through selling assets and lowering costs. But earlier this month, it agreed a deal to sell stakes in a pair of zinc mines for $400 million. It has also seen its share price rise 13 per cent in 2017 to £3.14.
The global oil glut has made storage an incredibly profitable business for companies like Glencore, because traders need somewhere to store their excess barrels. The boom period is showing no signs of nearing an end, as China’s demand for oil storage continues to rise. Many of Glencore’s industry rivals have already made similar moves to sell off shares.
The US$775 million deal is subject to regulatory approvals and is expected to close in the second half of 2017.
In related news, oil prices rose slightly this morning despite fears that growing U.S. crude inventories and drilling activities were counterbalancing production cuts elsewhere in the world. The March contract closed with Brent futures falling 15 cent per barrel to $53.38 per barrel and U.S. WTI crude futures also down 8 cents per barrel to $50.52 per barrel.
Both Brent and WTI futures posted their worst quarterly losses since Q1 2015. Brent ended the quarter 7 percent lower and U.S. WTI fell 6 percent. This is largely being attributed to U.S. production increases. The U.S. energy department released supply and demand figures for January last week, which showed the country's oil demand for that month rose 0.9 percent at 19.234 million barrels per day, while production rose 60,000 bpd to 8.835 million barrels.
Last year, the Organization of the Petroleum Exporting Countries (OPEC) agreed to new production cuts with other non-OPEC producers like Russia. This is expected to tighten the market and draw down inventories in the second half of this year.
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