Oil Price Volatility -- Explained -- Sort Of -- December 2, 2023

 Locator: 46221OIL.

Both of these articles are behind a paywall. One is from Bloomberg and the other is from The WSJ. 

From The WSJ -- again this article is a year old but nothing has changed.

It has been a tough year (2022) for oil traders. Even the computers haven’t been able to get it right consistently. Wall Street is closely tracking firms that use trend-following algorithms to trade oil futures, which profited mightily from betting on higher prices as crude climbed to more than $120 per barrel this spring. But with oil falling bumpily since June, the trend-followers have waffled between bullish and bearish wagers and given some of those profits back.

Analysts are blaming them for amplifying oil’s wild price swings. Traders are monitoring them to steer clear of the waves they make in the market. Investors are mimicking them for profit. And this year’s oil-price roller-coaster ride is putting their logic to the test.

Recent research from Goldman Sachs cited so-called commodity trading advisers for intensifying a recent five-week slide in which oil dropped nearly 23%. Brent crude, the international benchmark for oil prices, landed at a recent low around $79 a barrel, close to where it started the year.

Commodity trading adviser, or CTA, is industry jargon for a hedge fund that uses computer algorithms to divine and follow price trends, typically by comparing recent prices to their average over a previous period. Despite their name, CTAs trade futures on currencies, stocks, and bonds in addition to commodities such as oil.

Like previous ones, “the most recent selloff, has also been associated with substantial CTA liquidations,” says Daniel Ghali, senior commodities strategist at TD Securities.

Bottom line: CTAs have no emotion, do not read financial statements, do not follow politics, do not know the difference between computer chips and potato chips. They simply track price changes over time... from as short a period as one minute to as long as years.