Never have events such as the war in Ukraine and Israel had such a profound impact on the oil market as the use of bot-advisors. In fact, artificial intelligence has stirred oil prices in a way that was unprecedented for humans.
Renowned financial analyst Eldar Shamsutdinov writes about this on his Telegram channel:
Bloomberg reports that the high volatility in the 2023 market is a result of the increasing activity of Commodity Trading Advisors (CTA) bots.
Over the past two months, oil has approached the $100 mark, only to sharply fall back to $70. In 2023 alone, fluctuations of more than $2 per day have been recorded 161 times. In 2022, when CTA trading volumes rapidly increased, New York oil futures fluctuated more than $2 per day 242 times, which is 150% higher than the historical average since 2000.
The problem with algorithms is that they typically follow the trend and exaggerate it.
When prices fall, they sell, driving them even lower. What is even more concerning for consumers is that the same can be said for the positive side. This significantly rocks the market, ultimately affecting consumer prices and, consequently, inflation.
Presumably, it was CTA that contributed to the revaluation of oil by a whole $7 per barrel during a recent rally.
Even the war between Russia and Ukraine, the conflict between Israel and Hamas, and the OPEC+ production cuts did not have such a profound impact on the market. Of course, fundamental factors of supply and demand still dictate overall commodity price cycles, but in day-to-day oil futures trading, speculative forces, primarily represented by CTA bots, are starting to dominate. This amplifies volatility and leads to a disconnect between physical and paper markets.
CTAs make up about one-fifth of managed money participants in the U.S. oil industry, but they account for nearly 60% of the group’s net trading volume. According to TD Bank and JPMorgan, algorithms account for up to 70% of crude oil transactions on average per day.
