Oil prices have dropped by more than half since last peaking in June. The falls have coincided with a steady rise in short positions equivalent to more than 178 million barrels, as more and more traders hope to profit from the market decline.
Open short positions in benchmark U.S. WTI crude futures are at their highest level since the second half of 2010. Indeed, they have never been higher for the month of January.
In previous years when short positions rose to similar levels, prices began increasing shortly after as traders closed their short contracts to avoid being caught on the wrong side of the market.
While history is by no means an infallible guide, some traders are starting to pencil in at least a short-term bottom to the price decline. On Friday, a bout of short-covering pushed prices up from six-year lows after data showed a record weekly decline in U.S. oil drilling.
(Editing by Ryan Woo) Copyright (2015) Thomson Reuters.
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