World's Largest Physical Oil Trader Warns: Oil Prices to Face "More Severe Volatility" in Q2

Gunvor, the world's largest physical oil trader, has issued a warning that affected by the combination of tense situations in the Middle East and the off-season demand, international oil prices will face more severe volatility in the second quarter. Its trend will be mainly driven by geopolitical news rather than the fundamentals of market supply and demand; at the same time, the divergence in oil demand forecasts among major institutions has further increased market uncertainty. In response to this situation, Gunvor clearly stated that it will strengthen its physical crude oil trading business and strictly control the "stress risk" in derivative transactions.

As the world's largest physical oil trader, Gunvor explicitly warned that the current continuous tension in the Middle East, coupled with the seasonal low of oil demand, will jointly drive international oil prices to experience more severe and unpredictable volatility in the second quarter, with a significant increase in market uncertainty.

On April 21st, according to a report by the Financial Times, Gary Pedersen, CEO of Gunvor, stated in an interview that every year from April to June is the off-season demand between the winter energy supply peak season and the summer driving fuel peak season. During this period, the oil market may become "very volatile", and the trend of oil prices will be more driven by geopolitical news related to headlines rather than the fundamental factors of supply and demand in the market itself.

"This is a more challenging and weaker period, and we need to remain vigilant. Frankly speaking, the market may be very volatile," Gary Pedersen said bluntly.

From the perspective of institutional forecasts, there is a significant divergence between the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) in their judgments on oil demand in the second quarter: the IEA predicts that global oil demand will drop by 1.5 million barrels per day in the second quarter, a decline that sets the highest record since the COVID-19 pandemic; while OPEC's forecast is relatively moderate, expecting a daily decline of only 500,000 barrels. The divergence in demand prospects between the two authoritative institutions has itself added more uncertainty to the oil market.

Resonance of Off-Season Demand and Geopolitical Risks in Q2 Aggravates Market Volatility

Gary Pedersen further pointed out that the second quarter has always been a seasonal low for global oil demand, and the current continuous tension in the Middle East has further amplified market instability. He emphasized that in the short term, the trend of oil prices may be more dominated by geopolitical news rather than determined by the actual supply and demand relationship of the market.

On the demand side, the divergence between the IEA and OPEC's forecasts is particularly prominent—the former expects a daily decline of as high as 1.5 million barrels, while the latter is only 500,000 barrels. This divergence not only reflects the high uncertainty in the market about the prospect of oil demand, but also means that any data change beyond market expectations may trigger severe fluctuations in oil prices.

Gary Pedersen also added that although oil price futures have fallen sharply several times recently—he attributed this phenomenon in part to Trump's "masterful" operation in political information dissemination—the physical crude oil market is still in a tight state, and global buyers are actively looking for alternative sources of supply to make up for the gap caused by supply disruptions in the Gulf region.

Faced with the current highly uncertain market environment, Gunvor has formulated a clear response strategy, whose core lies instrengthening physical crude oil trading and strictly controlling derivative trading exposure to reduce risks caused by market volatility.

Gary Pedersen defined the core concept of this response strategy as "stress risk"—specifically, the danger of being forced to close positions and suffer losses in extreme and unpredictable price fluctuations. "Stress is what turns the lights off, so we make sure we are continuously measuring stress risk every day," he further explained.

The formation of this risk control strategy stems from the profound lessons Gunvor learned from past market crises. After the full-scale outbreak of the Russia-Ukraine conflict in 2022, global natural gas prices soared sharply. At that time, Gunvor was forced to close some trading positions due to the sharp price increase, exposing the weak links in the company's risk management.

Gary Pedersen said that before the outbreak of the current Iran conflict, the company had comprehensively reviewed all trading positions and risk exposures in advance, and maintained normal trading throughout the conflict, including a large number of purchases of crude oil released from the U.S. Strategic Petroleum Reserve. "We did not encounter any liquidity constraints, and were able to continue trading, maintain liquidity, and focus on all arbitrage opportunities," he said.

In terms of business layout, the United States has become the most important strategic fulcrum for Gunvor. "We are focused on how to expand our business footprint in the United States, and we are still very optimistic about the U.S. natural gas and crude oil markets," Gary Pedersen revealed.

In addition, Gary Pedersen also publicly revealed the company's interest in acquiring refining assets. He believes that the continuous closure of refining capacity in Western markets over the years has created structural investment opportunities for the industry. "With the arrival of demand growth, the prospect of the refining industry is very positive," he said.

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