Insights 
VT 
Quantitative funds are influencing short-term crude price trends, with CTA buying and WTI short covering expected to bolster Brent crude. Despite limited disruptions from recent Russian sanctions, algorithmic flows are anticipated to lean towards continued buying activity.
CTAs are beginning to establish a net long position in Brent crude, and even if prices remain flat over the next week, they will likely cover WTI shorts. Recent sanctions on Russia may lead to large-scale buying, increasing CTAs’ max size by nearly 30%.
Short-Term Trends
In the short term, quant fund shorts are set to dictate price action. Despite the fresh wave of sanctions expected to cause minimal disturbances, the influence of algorithmic strategies on the market seems poised to grow.
Various factors are influencing broader market trends, such as the fluctuating prices of gold and currencies like GBP/USD and EUR/USD. Market participants are also closely monitoring global trade developments, particularly regarding US-China relations.
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It appears that algorithmic trading systems are currently dictating the direction of crude oil prices. We are seeing these quantitative funds actively buying Brent crude while also being forced to cover their previous bearish bets on WTI. This combined buying pressure is creating a strong upward momentum that is likely to continue over the next few weeks.
Recent Data and Market Indicators
This trend is supported by recent data, as last week’s Commitment of Traders report showed managed money net long positions in Brent crude increased by over 25,000 contracts. This move coincides with the announcement of new sanctions on Russian oil entities, which, while not expected to cause significant supply disruptions, have provided the catalyst for these algorithms to initiate buy programs. Even if prices were to stall, the process of covering WTI shorts alone should provide a floor for the market.
Further pressure on WTI shorts comes from the latest inventory figures. The most recent Energy Information Administration (EIA) report showed a surprise draw of 2.1 million barrels from the Cushing, Oklahoma storage hub, tightening the physical market and making it costly to maintain short positions. This fundamental data point forces the hand of quant funds, compelling them to buy back contracts and adding fuel to the rally.
For derivative traders, this suggests a bullish bias is warranted into early November. We should look for opportunities to establish long positions, perhaps through buying call options or implementing bull call spreads to define risk. The key is to recognize this is a momentum-driven trade fueled by algorithmic flows, not a long-term shift in supply and demand fundamentals.
We have observed similar patterns before, particularly during the CTA-driven rallies of late 2023, where technical signals temporarily overshadowed fundamentals. The current stable production quotas from OPEC+ provide a steady backdrop, removing a key variable and allowing these technical flows to dominate price action for now. Therefore, trading with the algorithmic trend seems to be the most prudent approach in the immediate term.
However, since this price action is heavily influenced by short-term fund flows, the situation could reverse quickly once the buying programs are exhausted. Traders should remain nimble and use disciplined risk management, such as tight stop-losses on futures positions. The minimal expected impact from the sanctions means the rally rests on a fragile technical foundation.
