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
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