‘Record’ number of bets against oil. Buy it

Published Wed, Mar 4 201511:18 AM EST

There's a record amount of bets against oil right now, according to a commodity research firm, increasing the chances that the "short crude" trade has run its course and the bottom could be near. "The most recent commitment of traders report shows that market participants have finally capitulated on the move lower in crude, and there is now record gross short positioning in WTI," stated an INTL FCStone report to clients. The firm acknowledged that when accounting for bets for oil vs. bets against, the market is still "net long" crude. Some traders regard this net figure as a better read of the action, but nonetheless, the data point is one more contrarian signal that oil could be due for a bounce. Another indicator cited by many strategists, including Evercore ISI's Ed Hyman, is the industry's rapid move to take oil producing rigs offline. "The rig count plunged again last week to 1334 versus its peak 5 months ago of 1930. At this rate it will hit 1000 in 5 weeks. History tells us that a drop that big is likely to lead to a rally in oil," Hyman said in a Feb. 23 report. WTI crude oil is still down by more than half from June, but it stabilized in February. In fact, prices are up 15 percent from a low below $44 a barrel in late January. Source: FactSet This latest short data cited by INTL FCStone mean traders are betting for another leg down before the bottom is actually in. The main factor these bearish traders are hanging on is the weekly Energy Information Administration supply data, which continue to show supply at near record highs, despite the drop in rig count. "Betting on the downside makes complete sense," said Roberto Friedlander of Brean Capital. "Saudis will keep the pressure on." But any future disruptions in supply, like the fire at Exxon Mobil's Torrance, California, refinery last month, and any global shock, like some sort of aggressive action involving Iran if nuclear talks fall through, should put these short sellers on notice. Read More The buyback bull market: Purchases hit record Once oil ticks up a bit higher, those betting against oil will be forced to rush back into the market and buy crude to cover their short bets. "The next up move will be based on some type of world event that will rebound the market and where the remaining shorts will get squeezed," said David Greenberg of Greenberg Capital. The money play: The United States Oil Fund is the most popular ETF to bet on crude. If you have the risk tolerance, the ProShares Ultra Bloomberg Crude Oil ETF provides double the return of the move in oil.

The Philadelphia Energy Solutions refinery is shown Oct. 24, 2014, in Philadelphia.

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There's a record amount of bets against oil right now, according to a commodity research firm, increasing the chances that the "short crude" trade has run its course and the bottom could be near.