"Algorithmic" Traders Cause Gains For Oil As Sentiment Remains Bullish

One expert expects a return to traditional supply/demand trading soon: File Image/Pixabay

As predicted earlier by even-keeled oil analysts, cold weather in the U.S. and across Europe helped drive winter fuel demand, and as a result crude prices on Thursday settled up 1 percent.

Brent settled up 76 cents at $76.92 per barrel, while West Texas Intermediate settled up 60 cents to $73.92.

Winter storm warnings sounded in Texas, Arkansas, Tennessee, and Kentucky on Thursday, while across the pond freezing temperatures were forecast to persist over the next five days in the UK, France, Germany, and Nordic regions.

However, much milder weather will follow next week, resulting in a warmer than normal second half of January and presumably the slowing of inventory depletions.

There was also an irony to Thursday's trading drivers, as explained by John Kilduff, founding partner at Again Capital: he said, "Yesterday we saw strong refinery run rates, refiners in the U.S. are clearly cranking out fuels of all stripes and that is also underpinning the crude oil market today."

The Energy Information Administration reported that refinery crude runs rose by 45,000 barrels per day (bpd) in the week to Jan. 3, while utilization rates climbed by 0.6 percentage points to 93.3 percent.

Meanwhile, the rare positive sentiment that survived the previous session's trading losses seemed to be intact on Thursday, with Colin Cieszynski, portfolio manager and chief market strategist at SIA Wealth Management, saying that "Support appears to be coming in on expectations of an improved U.S. economy this year, and the potential for stimulus in China to improve demand there as well."

Matt Polyak, managing partner at Hummingbird Capital, added that oil demand "is expected to grow by approximately 1.5 million bpd in 2025, with "key drivers being India's growth, U.S. growth, and the pace of China's demand recovery."

For its part, Bloomberg viewed Thursday's trading as a case of "algorithmic traders who have come to dominate the oil market…..pulling back from the commodity after a second successive year of losses."

Bridgeton Research Group theorized that with losses mounting, some of these traders are reducing their exposure to crude oil, which could help traditional supply and demand-focused traders return to dominance the driver's seat.