The oil market and energy sector have been strengthening in recent weeks on ongoing speculation that the worlds’ largest exports, including the Organization of Petroleum Exporting Countries and Russia, may cooperate and implement an output freeze at current levels to stabilize prices, the Wall Street Journal reports.
A dip in U.S. crude and gasoline inventories are also diminishing fears of a supply glut.
SEE MORE: Gasoline ETF Back on Trend as Supply Glut Concerns Abate
Moreover, the sudden bullish sentiment has caught many short traders off guard, forcing many to scramble out of bearish positions and buy back contracts, which further fueled the sharp price increases.
“When you post up a record short position of that size, the resulting unwinding tends to be rather dramatic,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc, told the WSJ. “The OPEC headlines are the spark that’s feeding the fire.”
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United States Oil Fund