World's largest physical oil trader: Oil prices will face "more dramatic fluctuations" in the second quarter

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Gunvor, the world’s largest physical oil trader, has warned that the combination of heightened tensions in the Middle East and seasonal demand lows will drive oil prices to experience more intense and unpredictable volatility during the second quarter.

On April 21, according to the Financial Times, Gunvor CEO Gary Pedersen stated that from April to June, which is the demand lull between winter and the summer driving peak, the market could become "extremely turbulent," and oil price trends will be driven more by headlines than by supply-and-demand fundamentals.

"This is a more challenging, weaker period, and we need to stay vigilant. Frankly, the market could be very volatile."

The International Energy Agency (IEA) predicts that global oil demand will decline by 1.5 million barrels per day in the second quarter, the largest drop since the COVID pandemic; OPEC’s forecast is more mild, expecting a daily decrease of 500,000 barrels. The divergence in demand forecasts itself adds uncertainty to the market.

Demand Lull and Geopolitical Risks Resonate in Q2

Pedersen pointed out that the second quarter has always been the seasonal low for oil demand, and the ongoing tension in the Middle East further increases market instability. He said oil prices may be influenced more by geopolitical news than actual supply and demand.

On the demand side, there is a significant divergence between IEA and OPEC forecasts—the former expects a daily decrease as high as 1.5 million barrels, the latter only 500,000 barrels. This divergence reflects high uncertainty in the market's demand outlook and means any unexpected data shifts could trigger sharp price reactions.

Pedersen also pointed out that although oil futures prices have recently seen several sharp declines—which he partly attributed to Trump’s "masterful" management of political messaging—the physical crude oil market remains tight, with buyers actively seeking substitutes for supply disrupted in the Gulf region.

Facing a highly uncertain market environment, Gunvor's core response strategy is to strengthen physical crude oil trading while strictly controlling derivatives exposure.

Pedersen defines the core concept of this strategy as "stress risk"—the danger of being forced to close positions amid extreme and unpredictable price swings. "Stress is what turns the lights off, so we make sure to continually measure stress risk every day," he said.

This strategy was shaped by Gunvor’s hard lessons during past crises. After the full outbreak of the Russia-Ukraine conflict in 2022, gas prices soared and Gunvor was forced to close trading positions due to the sudden price spike, exposing weaknesses in their risk management.

Pedersen stated that the company conducted a comprehensive review of all positions and exposures before the Iran conflict and maintained normal trading throughout, including large purchases of crude from U.S. Strategic Petroleum Reserve releases. "We did not encounter any liquidity constraints, were able to trade continuously, maintain liquidity, and focus on all arbitrage opportunities," he said.

In terms of its business footprint, the U.S. has become Gunvor’s most important strategic anchor. "We are focused on expanding our U.S. business. We remain very optimistic about U.S. natural gas and crude oil," he said.

Additionally, Pedersen revealed interest in acquiring refining assets. He believes the closure of refining capacity in Western markets over the years has created a structural opportunity. "As demand grows, the outlook for the refining sector is very positive," he said.

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