Gunvor in the eye of storm

Gunvor, one of the renowned global crude oil traders is now enmeshed in uncertainty. The United States on Thursday March 20, 2014 in its diplomatic row with Russia, imposed sanctions on three prominent Russian energy figures, threatening further actions against the country’s energy sector if it does not stand down in Ukraine.

On the list of the US includes Gunvor’s co-founder Gennady Timchenko who is one of the people to face travel sanctions and asset freezes for their part in Russia’s seizure of Crimea. Timchenko, 61, was listed by Forbes as the 61st richest person in the world this month, with an estimated fortune of $15.3 billion.

Even though the US Treasury department said the sanctions were targeted at Timchenko and not Gunvor, it equally cautioned Americans against conducting transactions with a Russian firm that may be controlled by an individual under sanctions, even if that person does not hold a majority stake.

Gunvor, which had a turnover of $93 billion in 2012, grew rapidly by trading large volumes of oil from Russian state companies such as Rosneft at the end of last decade. Within hours of the sanctions, Gunvor announced Timchenko had sold his near 50 percent stake in the company ahead of the sanctions move to allow the firm, which handles almost 3 percent of global oil supplies, to avoid disruptions to its operations. Despite that, traders said there were still doubts over Gunvor’s trading activity.

While Gunvor may not be under sanctions itself, international oil companies that trade with Gunvor remained tight-lipped over their trading relationship. Sources close to the company said it had received support from trading counterparties, including in the US but there are a few anxious trading partners who have quietly indicated unwillingness to trade with them.

Damage control

Torbjorn Tornqvist emerged as the new chief executive of Gunvor after buying out Timchenko’s 43.5 percent share. A spokesman for the company said they had reached out to all its trading partners and had seen “great support” from the trading community, including counterparties such as US majors.

Tornqvist and his team had multiple calls with banks, bond investors and counterparties to explain its position.

“All banks are supporting us. All US banks were among the first to clear us. The vast majority of counterparties have also done this. There are still a few going through their reviews,” Tornqvist said.

Still active in the marketplace

Gunvor was still active in the oil market as at Friday March 21 2014, buying a cargo of gasoline from France’s Total in Asia and selling gasoil in Europe. Bond traders priced in a greater risk of default on Gunvor’s $500 million of notes due in May 2018, with yields jumping to above 10 percent from around 7.5 percent before the sanctions on Timchenko were announced.

Impact on crude oil prices

While it was said that Timchenko had sold his stake in Gunvor before being sanctioned by the United States, the fact that he has been dragged into a growing political stand-off over Ukraine added to market concerns.

The news still frightened counterparties across the world which trade more than 2 million barrels of crude oil and refined oil products with Gunvor every day, plus other commodities including natural gas and coal.

Gunvor, the world’s number 4 oil trader, trades nearly 3 percent of the world’s oil supply, having grown from a $5 billion a year bit player in European markets in 2004 to a global behemoth with turnover of $93 billion in 2012.

Frank Uzuegbunam