Lies, damned AIs, and oil prices
Algorithmic execution has created the perfect insider-trading machine
Here is how you rig a market in broad daylight. Step one: become the President of the United States. Step two: tell your closest friends you are going to say something incendiary about a geopolitical flashpoint that directly affects global commodity prices. Step three: place your bets, and wait for the machines to do the rest.
Prior to Trump 2.0, this might have sounded like a tinpot conspiracy theory. Today, it is a reasonable description of what appears to be happening in commodities and equities markets with alarming frequency at periods of heightened geopolitical tension.
Let’s set the scene. Three weeks into the US/Israeli war on Iran, Brent crude and TTF gas futures were struggling to price material supply disruption arising from the closure of the Strait of Hormuz. Despite widespread warnings of an unprecedented supply crisis, bullishness was moderated.
Over the weekend, Donald Trump posted a threat to bomb Iran’s power system if it did not re-open the Strait within 48 hours. Iran responded by threatening to destroy civilian energy and desalination infrastructure across the Gulf. Markets braced for a massive escalation in the Middle East energy war.
Shortly after markets opened yesterday morning, as the clock ticked towards his own deadline, Trump posted that the United States has postponed its bomb threat by five days after conducting “PRODUCTIVE CONVERSATIONS” with Iran over “A COMPLETE AND TOTAL RESOLUTION OF OUR HOSTILITIES IN THE MIDDLE EAST.”
Oil and gas markets tanked. Brent crude fell roughly 10% in seconds. European TTF gas dropped ~12% in sympathy. Equity markets gapped sharply higher on the assumption that a ceasefire, or at minimum a de-escalation, was imminent.
The trouble is, highly suspicious trading activity directly preceded the President’s declaration, and the pandemonium triggered by algorithmic execution fed into the chaos by validating the volatility.
This is what happens when the most powerful person on Earth knows that his words will trigger billions in automated trading, before anyone has time to ask if he’s telling the truth.
This article explores the relentless pursuit of market efficiency, the incentives that reward speed over precision, and how new technologies create a structural vulnerability for malign actors to exploit — at the cost of genuine energy market participants.
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