Short positions in oil stocks fail to show signs of slowdown

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By Jacob Maslow

While the easy short sale profits for most oil and energy stocks are definitely in the rear view mirror of many investors, Tim Rezvan, an analyst with Sterne Agee CRT notes that many bears still prefer to short the shares of gas and oil stocks. According to this group of market players, the oil and gas sector still has some quite some room to move downward.


From a purely historical perspective, the continuing short sale popularity of energy stocks makes a lot of sense. In the 90s, when oil stocks got hammered hard downward, it took years for them to recover since it took several years of upward pressure to finally keep the price of global crude reliably elevated. The same market dynamics seem to be at play with the current price of global crude. Notwithstanding a few pops here and there, the overall trend points to a price range below $50 per barrel. This trend provides a measure of predictability to traders looking to profit from the remaining ‘air’ left in oil and gas shares.


Three stocks Rezvan notes as being the focus of short seller attention are Chesapeake Energy (CHK), Approach Resources (AREX), Occidental Petroleum (OXY), and Energen (EGN). These stocks saw large increases in short positions. Overall, short interest in energy and petroleum stocks are at record highs. Conventional trading wisdom states there is still room to fall for these companies’ stocks. Industry wide, short interest is pegged at around 12.3% of petroleum and energy companies’ outstanding shares. This marks a 5.1% increase in short interest since November of last year. Don’t expect this pattern to change anytime soon.


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