(Bloomberg) -- Algorithm-driven oil traders turned increasingly bearish on Tuesday, adding to a rout that erased the commodity’s gains for the year and threatened to push US crude below $70 a barrel.
Global benchmark Brent plunged as much as 4.7% to the lowest intraday price since mid-December 2023 amid worries about demand in the US and China. A significant supply outage in Libya helped stall oil bears, but a potential deal to restore the nation’s production and the possibility OPEC+ will increase output next month have inflamed negative sentiment.
“Trend-following algo strategies are extending their short exposure in Brent today,” said Stephen Roseme, managing member of Bridgeton Research Group Llc. Those funds, known as commodity trading advisers, are net short in the global benchmark by about 64% currently, compared with about 46% net short as of Monday evening, the firm estimates.
Commodity trading advisers have grown into a formidable presence in oil markets in recent years, and their trend-following trading style often amplifies price moves in both directions, making it harder for traders with physical exposure to navigate the market.
Speculators were only just starting to unwind some bearish bets on crude last week as the outage in Libya helped inject some expectations that supplies would tighten. However, CTAs are now accelerating their activity across the near-end of the futures curve, with selling in the November, December and January Brent contracts, Bridgeton said.
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