This Is What Is Propping Up Oil

Short positions in oil exchange-traded funds surged to stunningly extreme record levels (up 300% in a month) in Janaury as crude oil plummeted. Since January 20th, however, things have changed rapidly as a massive short-squeeze began...

(axes adjusted to show relative scale of short position)

Now, as UBS notes,

Yesterday oil ended in the green despite a very large reported crude inventory build, a reflection of how biased to the downside sentiment and positioning already is. Today, crude started in the red and has been mixed from there but moving higher. And both days, the stocks have led with energy the best performing subsector in the S&P. Now, there is no doubt that the performance today is TOTALLY short-squeeze led. Though it also shows how negative sentiment and positioning still is.

And this is what is directly propping up the price oil...

The chart above shows the oil futures-equivalent-holdings of the all the Oil ETFs out there (quoted in 1000s of lots).

Thanks to the massive short-squeeze, Oil ETFs are currently net long 272k lots of oil, which is equal to 56% of the front month open-interest in futures, putting an unnatural floor on the market.

Watching the short-positioning continue to fall will provide some with evidence that this artificial bounce is over.