(Bloomberg) — Oil traders that rely on trend-following algorithms compounded a selloff in crude this week as OPEC+ unexpectedly signaled plans to return some supplies to the market later in the year.
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Brent crude plunged below $80 a barrel on Monday and pierced through other key technical levels, prompting several trend-following commodity-trading advisers to sell oil. The group has flipped to a net short position in Brent, compared with a net long position at the end of last week, according to data from Bridgeton Research Group.
The investors, known as CTAs, 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 more challenging for physical traders to navigate the market.
CTAs are currently estimated to be net short in Brent by about 36% compared to being net long by 27% at the end of last week, according to the Bridgeton data. In WTI, they are similarly bearish and are about 54% net short compared to 9% net short last week.
“CTAs are just hammering away the market with massive selling seen yesterday,” said Scott Shelton, an energy specialist at TP ICAP Group Plc. “I think that there is more CTA selling out here this morning, which is just pressuring the market and making the spreads look worse as they are no doubt selling the front month.”
Oil prices have slumped about 5% over just the last two days after OPEC+ agreed to allow some supply curbs to start unwinding as early as October. The move has added to the gloomy sentiment in pockets of the physical market around the world that are flashing signs of weakness.
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