The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate oil, has cobbled together some solid showings over the past several weeks and if bullish oil traders have their way, USO will see more near-term upside.
USO has been somewhat steady following a sharp reversal last month that forced a spate of short covering. A short position is a sale on a borrowed security. The investor needs to eventually return the borrowed stock by purchasing it back from the open market. If the price falls, the investor buys it back for less than he or she sold it for and pockets the profit.
A short squeeze occurs when investors with heavy short positions are forced to cover, or buy back, their shorts in the event of a sudden share appreciation – short sellers are essentially being squeezed out of their short positions, typically at a loss. Consequently, the additional buying momentum from short sellers covering their options contracts help bolster prices even further.
As has been the case throughout much of USO’s bear market, traders are continuing to pile into the fund while other traders load up on long oil bets in the futures market.
“Money managers boosted their net-long position on West Texas Intermediate by 16,855 contracts to 132,857 futures and options in the week ending Sept. 8, according to data from the Commodity Futures Trading Commission. Traders also boosted their bullish stance on Brent crude by the most since April,” reports Dan Murtaugh for Bloomberg.