USO has surged 10.3% this week to $120.17 — and the short-covering trade that stalled in the previous note has emphatically resumed, dragging borrow conditions tighter as it goes.
The covering pace this week is the most striking number in the dataset. Short interest has dropped 21% on the week to 83.7% of float — down from roughly 108% last Tuesday, and less than two-thirds of the near-130% peak hit in mid-June. That is a substantial unwind in a short period. Over the past month, shorts have cut their position by 40%. The direction is unambiguous: a sustained, large-scale exit from a once-crowded bearish position in oil. The previous note flagged that covering had stalled at the July 9 pop back to 108% — that stall has now decisively resolved to the downside, at least for short interest.
The borrow market tells a more complicated story, however. Availability has tightened sharply — from 82% last Monday to just 23% by Tuesday, a 92% weekly deterioration. At 23%, the lending pool is running tight: roughly one share sits available for every four already lent out. That is nowhere near the emergency levels of late June (when availability hit zero on June 19 and stayed below 3% for days), but it is a meaningful reversal from the loose 280-290% readings of early July. Cost to borrow has moved in the opposite direction — it collapsed 64% on the week to just 2.2% from around 6.8% last Thursday, its lowest level in the 30-day history. That divergence is worth sitting with: availability is tightening while CTB is falling. The most likely explanation is that as shorts cover and return borrowed shares, the gross pool of lent-out shares shrinks — leaving the remaining open interest concentrated and the available supply looking relatively thinner again, even as the overall borrow demand and associated rate pressure ease.
Options positioning has shifted noticeably too. The put/call ratio has dropped to 1.16, more than 1.6 standard deviations below its 20-day average of 1.38. Last week the PCR at 1.19 was flagged as the most bullish options reading in months — this week's 1.16 extends that further. The 52-week range runs from 0.56 to 2.52, so at current levels the options market is positioned on the bullish half of its historical distribution. Traders have continued trimming downside hedges and adding call exposure as crude finds footing. That's three consecutive weeks of PCR compression from the defensive June peak above 1.60.
The ORTEX short score of 69.4 is worth noting in context. It has climbed from 57.9 at the start of July to just over 70 mid-week before settling at 69.4 — a meaningful drift higher even as the absolute short interest level falls. A higher short score alongside heavy covering typically reflects the remaining short base becoming more concentrated and potentially more uncomfortable as the price rises. Institutional positioning, per the most recent 13F data from March 31, shows Goldman Sachs holding 52% of reported shares and Morgan Stanley 17% — predominantly dealer and market-maker flows consistent with the fund's ETF structure, rather than directional conviction bets.
The key tension to watch is whether the borrow market's renewed tightening — at 23% availability — puts a floor under CTB again, just as the price rally is asking remaining shorts to make a decision about holding or covering further.
See the live data behind this article on ORTEX.
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