(Bloomberg) -- The algorithmic traders who have come to dominate the oil market are pulling back from the commodity after a second successive year of losses.
So-called Commodity Trading Advisors, or CTAs — a class of algorithmic traders that seize on trends — posted consecutive annual losses for the first time in more than a decade last year, according to Bridgeton Research Group, which provides analytics on computer-generated trades.
With losses mounting, some of these firms are already reducing their exposure in crude oil, diminishing their impact on a market in which they had amassed a formidable presence in recent years. This could help traders who focus more on supply and demand balances return to the driver’s seat and normalize daily price moves in the futures market.
“Humans did have more success in 2024 than algos, which is different than the last couple of years,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group.
CTAs are estimated to have reduced the weight of crude in their portfolios to just 2% currently compared with 4% in July 2024, softening their impact on market movements and reducing their share of open interest, Babin said.
CTAs are loosely labeled as an individual or organization that advises on the trading of futures, options or swaps. But the most dominant type of CTAs are defined by their trading strategies: computer-driven and rules-based, with technical trading parameters embedded in a continually adjusting model.
Such trend-following CTAs had grown to dominate everyday trading in oil futures since the Covid-19 pandemic, exacerbating moves in both directions due to the way they trade and making it more challenging for traders with physical exposure to navigate the market.
But crude prices in 2024 were trapped in the narrowest annual price range since 2019, crimping volatility and draining the market of the sustained trends that the typical CTA relies on to make money. Wild price swings due to heightened geopolitical tensions in the Middle East over the past two years also contributed to CTAs pulling back, analysts said.
As a result, CTAs changed their weekly position in Brent crude in all but six weeks of 2024, the fewest steady weeks since before the pandemic, per Bridgeton.
Still, some firms are convinced gains in other markets such as equities can help them withstand the pressure in the hopes that their algorithms will deliver profits in oil eventually.
Dmitry Sukhanov, chief executive officer of Limex Quantum, a proprietary trading project of Lime FinTech LLC, manages one such diversified algorithmic trading system. Though his crude oil algos lost money this year in the “slow death” of the price range, they ultimately only comprise a single-digit portion of his overall portfolio, which also includes positive performance from stock indexes.
“Seeing poor performance of the overall portfolio or its constituents is an inevitable part of the systematic portfolio,” Sukhanov said, adding that some CTAs will likely bide their time as they use longer historical time series to optimize their strategies.
And there is hope on the horizon. A potential rebound in inflation because of US President-elect Donald Trump’s trade policies could increase macroeconomic volatility and boost activity in oil, including from CTAs, said Daniel Ghali, commodity strategist at TD Securities.
“The key question will be whether CTAs increase their crude and product weightings within their models, potentially shifting focus away from other assets in their portfolios,” Babin said. “This could mark a return to greater influence in the market.”
--With assistance from Kevin Orland.
©2025 Bloomberg L.P.