Bloomberg: what is the reason for the «roller coaster» in the oil markets

Today, oil trading resembles a roller coaster, and trading bots are behind it, Bloomberg analysts suggest.

In October and November, oil futures prices sometimes approached the $100 per barrel mark, then fell sharply to $70. In just one day in October, the futures price fluctuated by 6%. In general, in 2023, oil prices often changed by two dollars during the day – 161 times a year. Analysts point out that this is a huge volatility compared to previous years.

What is happening cannot be explained only by the actions of OPEC or the war in the Middle East. Of course, the fundamental factors of supply and demand continue to influence the overall trends in oil prices. However, in modern crude oil futures trading, speculative factors have a strong influence, which increases volatility and creates a gap between the physical and paper oil markets.

We are not talking about simple speculators, but about an opaque group of algorithmic money managers known as Commodity Trading Advisors (CTA). According to Bridgeton Research Group, they make up one fifth of the number of managed money participants in the U.S. oil industry. In 2023, CTA took about 60% of the net trading volume, which is the largest share since 2017.

According to TD Bank and JPMorgan, on average, algorithmic trading strategies account for up to 70% of crude oil transactions per day.