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AUG 3, 2016

S3 BLACKLIGHT: Longs and Shorts Are Both Bearish in Oil ETF's

With the price of oil down 13% since mid-July, short sellers have reversed their easing momentum in oil ETF’s and begun shorting again.

Short interest in largest oil ETF, the United States Oil Fund (USO US) at $3.1 billion, had been down to $430 million in mid-July but has reversed course and climbed back up to $500 million, up $70 million or 16%, in the last two weeks. The S3 Velocity Indicator, a measure of real time relative change in shorting activity, has seen its 7 day trend line moving sharply upwards, crossing both the 30 day and 90 day lines, and the 30 day had begun a gradual rise as well.

Short interest in the Spider S&P Oil and Gas Exploration & Production ETF (XOP US) is over $2 billion for the first time since February 2015 with $69 million of new short activity since mid-July. The S3 Crowding Indicator, a measure of the magnitude of real time shorting activity relative to market cap and float, had a crowding event on August 1st and all three trend lines in the Velocity Indicator are now moving upwards. In addition to shorts building their positions there were $153 million in ETF outflows in the last two weeks.

The VanEck Vectors Oil Service ETF (OIH US) had a small outflow in the last two weeks, down $30 million to $765 million in market cap as well as $12 million of additional shorts, bringing short interest to $398 million. As with the XOP, the OIH had a Crowding event on August 1st and all three of its trend lines in the Velocity Indicator trending upwards.

In aggregate, there were $232 million of net outflows in these three ETF’s during a time when total ETF inflows in July were over $52 billion. While the total short interest in the three ETF’s increasing by $245 in July.

With WTI Cushing prices dipping below $40 yesterday for the first time since early April, both long ETF holders and short ETF holders are trading with a bearish sentiment.

For more information on the above analysis, please contact:

Ihor Dusaniwsky, Head of Research, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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