TOKYO--(BUSINESS WIRE)--ATB Holdings have noticed a recent hike in short selling contracts on Brent Oil as it reached its highest levels in six years. Short selling must be bought back before the term of the future contract is over. Some traders expect to see a sharp rise in the oil prices fueled by profit taking and stop losses investors placed to protect their positions.
Fundamental data from the US, the unexpected increase in the US inventories, and bearish technical indicators pushed the prices of Brent Oil to $44.35 last week, the lowest it has seen in six months. The move in oil prices was strong which pulled the market to an oversold state.
Daniel Holland who is the Head of Corporate Derivatives at ATB Holdings believes that the market is positioned for a sudden trend reversal, adding that number of short contracts is very high, and the sentiment is very negative, all are signs of reversal as the efficient markets tend to balance itself.
Such reversals are short lived, in the long run, supply and demand determine the price trends. Funds have built a huge short position in the last few weeks, if these funds decided to cover their shorts, it could trigger the short-term increase in prices. Funds buying and selling decisions are based on technical analysis.
Last year the same happened when OPEC (Organization of Petroleum Exporting Countries) agreed to cut their oil production in November 2016. Speculators and investors covered a big portion of their short positions in response to OPEC’s decision, wiping out over 114 million barrels of short contracts in just one month, the reaction pushed Brent contract price up $12 a barrel in the same period.
This time, both fundamentals and technical indicators worked in favor of the bears, the increase in US inventories and bearish technical signals caused an increase of the short selling and at some level it snow-balled pushing the market further down.
Director of Investment Management Division at ATB Holdings Charles Sutton commented, “the market players got carried over with the short selling, some of these positions will be cleared with the price increase.”
Andrew Hayward, an advisory at ATB Holdings doesn’t believe the oil fundamentals are pointing north, he thinks the move up will present an opportunity for a better place to sell.
About: ATB Holdings is a private wealth management company for retail and corporate clients. Established in late 2008 ATB Holdings has been pursuing the interests of its clients by offering various financial products and instruments through careful tailored advice to meet their requirements.
Source: ATB Holdings