Iran Risk Hands Oil Algos Early Test

Algorithmic traders have racked up a third straight year of losses in oil, the longest slump on record, with hopes for a turnaround in 2026 facing an early test amid geopolitical volatility.  

Price swings sparked by tariffs and wider upheaval from Iran to Ukraine last year starved market players known as commodity-trading advisers, or CTAs, of the clear directional signals they need to profit. The algorithmic traders suffered their longest annual losing streak last year in data going back to 2000, according to analytics firm Kpler. CTAs, which seize on trends, are notorious for amplifying price moves in either direction.

For a brief period, conditions appeared to be tilting in their favor. Growing consensus that the oil market will be oversupplied gave CTAs a clear signal late last year, allowing them to eke out a rare positive quarter, according to analysts. That’s compared to much of the rest of 2025, as they struggled to grasp onto a trend amid the Trump administration’s unpredictable trade policy and conflicts in the Middle East. 

The positive late-year momentum spurred CTAs to increase their presence in WTI’s front-month contract, according to Kpler, amplifying volatility and complicating market conditions for participants with physical exposure. The shift could be particularly consequential as geopolitical risks, like the threat of US strikes against Iran, trigger sharp price swings.

“Choppy ranges, fake breakouts against the underlying fundamentals, signals that worked for about two days before reversing,” Cayler Capital, an oil-focused commodity trading adviser run by Brent Belote, wrote of last year’s trading environment in a letter to investors seen by Bloomberg. “This is the kind of market that exists solely to humble quants and annoy traders.”

The turmoil led CTAs to change their position in US oil in roughly 80% of the weeks in 2025, according to data from Kpler. The majority of steady weeks took place in the fourth quarter, when rising production from both OPEC and non-OPEC countries contributed to a widely-embraced oversupply narrative. 

In recent times, the market’s focus has shifted between rising global supplies to a slew of tailwinds, including tensions between Washington and Tehran, disruptions at a key export terminal in the Black Sea, and a winter storm in the US. 

The volatility forced a rethink among algorithmic traders. CTAs flipped from net-short to net-long earlier this month, latching on to what appeared to be a new bullish trend, according to Kpler.

WTI surged nearly 7% last week, the biggest gain since October, before reversing sharply when markets opened on Monday as US-Iran tensions appeared to ease. CTA returns have been marginally negative so far in January, said Kpler, with geopolitical volatility once again posing the same challenge that undermined performance last year.

Even so, CTAs are still on track to expand their share of front-month WTI’s average daily volume during large price moves to as much as 35% by 2026, up from roughly 15% to 25% last year, according to the firm. The Energy Information Administration expects oil prices to decline in 2026 as supply outstrips demand, with Brent crude expected to average $56 a barrel.

Bright Spots

While many trend-following funds faltered in 2025 as crude prices stalled, some systematic strategies still found profits further along the global benchmark’s curve and in refined product time spreads. 

Brent’s edge over WTI may reflect the US benchmark’s tendency to trade against broader macro assets like equities and metals, said Frank Monkam, head of macro trading at Buffalo Bayou Commodities.

As a result, WTI trends can be noisier for systematic traders, while Brent more cleanly tracks oil-market fundamentals, he said.

Refined product spreads were another bright spot last year. Strong gains in gasoil calendar spreads helped lift CTA activity in those contracts by roughly 56% for 2026, while algorithmic exposure across all refined product spreads is projected to rise by about a quarter. 

“Compared with crude, products represent a much smaller and more concentrated playing field,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “That’s a double-edged sword — price action can be driven more forcefully, but unwinds can also be more volatile and choppy.”

Some, like Cayler’s Belote, are expanding their models to focus on commodities that have significantly outperformed energy this year. The firm recently announced plans to launch a Systematic Metals Program this quarter, positioning it as a step toward greater portfolio diversification and access to new opportunities in metals markets.

“Quiet years like this tend to get dismissed,” Belote wrote. “They shouldn’t. These are the years where the plumbing gets fixed, risk models get tuned, and the strategy survives long enough to matter when the environment shifts.”