Re-energised oil market forces short sellers to cover
30 March 2016 London
Image: Shutterstock
Short sellers have covered 16 percent of positions in North American energy stocks since February, after some of the most affected energy companies begin to recover, according to Markit.
Markit data shows that some stocks are still attracting high borrowing costs, indicating that perhaps there are still some who believe that the sector has further to fall and the recent rally is driven by a short squeeze.
Big names such as Teck Resources, EP Energy and Cliffs Natural Resources were highlighted by Markit Research Signals Short Squeeze model as being at risk of a short squeeze.
Currently, there are almost a fifth of Cliffs Natural Resources’ shares outstanding on loan, declining by a third over the past 12 months.
Despite shorts covering in recent months, Markit notes that there remains a significant cost to borrow of above 10 percent, indicating demand to short remains strong despite the recent price volatility.
At the same time, Teck Resources has seen a fifth of its shares sold short and a higher than average cost to borrow of above 2 percent.
However, the company’s stock has soared by 160 percent since record lows in early January, forcing short selling to cover almost a quarter of their positions.
EP Energy has also seen short interest levels plummet by 40 percent as its shares soared by more than 2.5 fold since the end of February.
The demand to borrow in the company has averaged more than 40 percent over the past few weeks meaning short sellers have paid significant borrowing costs while also absorbing substantial losses.
Across firms with more than $2 billion in market cap, the energy sector is the second most shorted after retail after rallying by 15 percent in the last month, as measured by the Energy Select SPDR ETF.
Markit data shows that some stocks are still attracting high borrowing costs, indicating that perhaps there are still some who believe that the sector has further to fall and the recent rally is driven by a short squeeze.
Big names such as Teck Resources, EP Energy and Cliffs Natural Resources were highlighted by Markit Research Signals Short Squeeze model as being at risk of a short squeeze.
Currently, there are almost a fifth of Cliffs Natural Resources’ shares outstanding on loan, declining by a third over the past 12 months.
Despite shorts covering in recent months, Markit notes that there remains a significant cost to borrow of above 10 percent, indicating demand to short remains strong despite the recent price volatility.
At the same time, Teck Resources has seen a fifth of its shares sold short and a higher than average cost to borrow of above 2 percent.
However, the company’s stock has soared by 160 percent since record lows in early January, forcing short selling to cover almost a quarter of their positions.
EP Energy has also seen short interest levels plummet by 40 percent as its shares soared by more than 2.5 fold since the end of February.
The demand to borrow in the company has averaged more than 40 percent over the past few weeks meaning short sellers have paid significant borrowing costs while also absorbing substantial losses.
Across firms with more than $2 billion in market cap, the energy sector is the second most shorted after retail after rallying by 15 percent in the last month, as measured by the Energy Select SPDR ETF.
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