The Energy Select Sector SPDR (NYSEArca: XLE) is up nearly 8% over the past month. Still, bright spots have been few and far between for equity-based energy exchange traded funds this year and that could be emboldening short sellers to target the sector.
With oil prices showing signs of bouncing back, the once downtrodden energy sector could be poised to extend its recent rally. The low oil environment may persist as the Organization of Petroleum Exporting Countries projects demand for its crude to remain lower in 2020 than in 2016 as rivals remain resilient despite the depressed prices.
That could prove dangerous for short sellers running into the sector.
“As oil prices struggle to recover and expected debt default rates climb, the level of energy shorts on the S&P 1500 as a percentage of float, or those available for selling, is at 12.5 percent, approaching the 13.45 percent level financials saw in July 2008 amid the crisis, according to calculations by Bespoke Investment Group,” reports Jeff Cox for CNBC.
Concerns over Chinese oil demand also pressured prices. China revealed that its service activity expanded at a slower-than-expected pace, which has fueled pessimism over a potential slowdown in the second largest oil-consuming country in the world. [China ETFs Suffer New Year Hangover ]