ZeroHedge, writing in Oilprice.com, says that OPEC has caused a monumental short squeeze in worldwide oil prices. The argument may be a bit off, but the results may be accurate nevertheless.
Ever since the February crash, when oil tumbled to 13 years lows, and when OPEC started releasing tactical headlines at key inflection points about an imminent oil production freeze (which not only never arrived but has since seen Saudi Arabia’s output grow to record levels) which we first suggested were meant to trigger a short squeeze among headline scanning HFT algos, our suggestion was – as is often the case – dismissed as yet another conspiracy theory.
The author then made the point that the conspiracy theory has become the conventional wisdom.
Analysts at Fidelity were less certain, although they did not take an entirely contrary position:
OIL: A bit of a short squeeze in oil was just seen, but the market will watch to see if WTI can get back above $43 on a sustained basis before becoming more optimistic. WTI Tuesday took out initial support at $43.03 Monday and $42.50 today, with extension earlier to $42.36. WTI earlier was nearing key support near $41.88, which is the 38.2% Fibonacci retracement of the $26.05 to $51.67 run-up from February to June, and some bottomfishers likely emerged. WTI just rose to $43.19, but has since backed off to current levels near $42.91. A close above $43.03, with followthrough above Monday’s high of $44.37 will be needed for upward momentum to mount.
While crude has indeed run up since early August, it is nowhere near the price level of early to mid-June. Also, recently it has begun to sell down again.
Among the ZeroHedge conclusions, as stated at Oilprice.com:
Meanwhile, as even OPEC tries to ignite HFT algo short squeezes (one wonders who OPEC’s financial advisor in this regard is), US shale is rapidly coming back on line: as reported on Friday, there has been an upsurge in drilling as prices have climbed. U.S. producers added oil rigs for an eighth week, the longest run since April 2014, according to Baker Hughes Inc. data on Aug. 19
The U.S. production increase would seem to undermine the short argument.