Geopolitics-led volatility in the market isn’t good for business, Shell CEO says after drop in second-quarter profit.
A recurring theme of second-quarter earnings is becoming clear: Big Oil’s crude traders don’t love geopolitics-led volatility. On Thursday, Shell Plc Chief Executive Officer Wael Sawan joined a list of industry executives who pointed out that such market turbulence — which has little to do with the realities of day-to-day supply and demand — isn’t easy for traders to deal with. Instead, they dial back risk. That’s an important detail for oil investors given that US President Donald Trump is showing no signs of letting up on his slew of tariffs on trading partners.
It’s also a reminder that a prime booster of European supermajors’ profits — black-box trading — may not always be able to deliver.
“We are much more of a fundamentals-based trader, so we chose to be a bit more risk-off, more of a prudent risk-management approach,” Sawan said today. The oil majors are tight-lipped about how their traders operate, but they handle more barrels than many of the world’s top merchants. When asked in 2020 about his company’s profit from the sector, TotalEnergies SE CEO Patrick Pouyanne replied simply: “Oil trading is a secret.” Sawan previously said his company’s traders haven’t lost money on a quarterly basis during the last decade. However, Shell’s second-quarter earnings — and those of peers — show how the influence of presidential social-media posts, tariff threats and military maneuvers can swing crude markets in ways that are too unpredictable to trade on. Norway’s Equinor ASA lamented the “different type of volatility” that makes it “very hard to trade around.” The Stavanger-based company said its second-quarter profit dipped compared with a year earlier. In today’s market, Big Oil isn’t chasing every price swing. Rather, it’s learning when to sit them out.