• Short sellers amassed $6.5 billion in profits betting against oil & gas storage and transportation
  • Only 6.5% of stocks in the sector did not generate a profit for shorts
  • Investors increased bets against stocks and USO ETF as crude fell

Short sellers targeting the Oil & Gas Storage & Transportation sector have made $6.58 billion in mark-to-market profits this year, said S3 Partners in a note published Tuesday. 

Investors betting against the sector hit "oil, black gold, Texas tea" in every stock except 6.5% that generated a relatively small loss of $2.07 million. The most profitable shorts were Energy Transfer LP, Enbridge, Oneok, Enterprise Products and Pembina Pipeline. Short interest in the sector has averaged $13.76 billion in 2020. Prior to last week, short sellers were actively covering their positions to realize profits. They decided to reverse course and started short selling across a broad range of stocks in the sector over the last week, according to the note from the financial analytics firm.

"With oil production building and storage facilities closing in on full capacity, the Oil & Gas Storage & Transportation Sector is a potential epicenter of volatility over the short term. Short sellers are now in the unenviable position of trying to protect and\or realize 2020 mark-to-market profits versus deploying additional resources to a sector that may have room to run," wrote Ihor Dusaniwsky, Managing Director Predictive Analytics, S3 Partners. "Further oil price volatility in the both the spot and futures market will create more opportunities in the sector."

S3 Partners oil
Source: S3 Partners.

Short sellers also began circling the United States Oil Fund LP, the largest oil fund, after the prospects for crude looked bleak. After actively short covering into the
weakening oil market from Jan. 1 to Feb. 27, S3 says they went into overdrive, tripling the USO shares shorted from Feb. 27 to April 21.

S3 Partners
Source: S3 Partners.

"Over the last month, shares shorted increased by +15.04 million shares, +29.52%, and over the last week an increase of +6.50 million shares, +10.93%. USO short interest is now $213 million, 75.82 million shares shorted, 15.47% short interest % of float," wrote Dusaniwsky in a separate note published yesterday.

On the other hand, investors at Robinhood are piling into USO. See the chart below from Robintrack, a website that tracks investments on the platform.

Robintrack USO
Source: Robintrack.