Recently, the global oil market has been taking twists, astonishing traders and analysts. Some analysts reckon that the oil market is in the hands of market makers operating through bots. Let’s imagine a sci-fi movie where artificial intelligence is the main character whereas humans play supporting characters. Amazingly, sci-fi has become a reality.
Experts say that speculations by AI-run trading bots are to blame for high volatility and a gap between physical deliveries and the futures market. Curiously, commodity trading advisors (CTA) are nowadays setting the tone for the energy market. These are programs designed for buying/selling futures contracts and options on futures with crude oil as an underlying asset. This trading software is based on algorithms.
Analysts warn about the mounting influence of trading bots over trends in the oil market. Interestingly, oil prices have been gyrating in the two recent weeks, losing or gaining $1-2 a barrel daily. At the same time, the information background has been neutral, experts pointed out.
Think tank Bridgeton Research Group estimates that commodity trading advisors account for 60% of the trading turnover of hedge funds and other leading market players in the US petroleum market throughout 2023. Analysts note this is an alarming sign for the crude oil market.
Experts also raise concerns that algorithmic strategies are capable of ramping up intraday price swings. A seesaw in the oil market has a negative impact on inflation because such sharp fluctuations are instantly mirrored in prices of gasoline and other petroleum products. Analysts caution that commodity trading advisors have already inflated oil prices by up to $7 a barrel intraday.
The US authorities are also worried about grave AI’s influence over the commodity market. The White House suspects that the bullish trend of oil prices in 2022/23 is ensured with the involvement of trading bots. Last year, when algorithmic trading had been clicking into gear, New York-traded oil futures burst into strong volatility. Analysts recorded 242 sessions when oil prices gyrated by more than $2 intraday. According to estimates, such volatility levels exceeded the average level by 150% in the last 23 years.