USO enters September with a remarkable divergence: short sellers have continued their retreat even as the oil fund posts its strongest weekly gain in months, leaving the borrow market dramatically looser than it was just two weeks ago.
The short-covering story that dominated the August 26 note has not stalled — it has deepened. Short interest fell another 30% over the past week, dropping from roughly 14.1 million shares in mid-August to just under 9.9 million by September 1. As a percentage of free float, SI now reads 74.9% — still elevated in absolute terms, but down sharply from the 77% flagged in Tuesday's note and a long way from the 104% level recorded on August 19. The one-month decline of 23% confirms this is a sustained unwind. Bears who built positions when borrow was tighter are continuing to cover even as the fund rallies, not fighting the tape.
The borrow market tells the same story from the supply side. Availability has expanded to 274%, more than double the 163% reading of August 31 and well above the sub-30% levels seen in early August when conditions were genuinely tight. Cost to borrow has crept back up to 3.95% from the anomalous 2.24% reading of August 31, but that remains comfortably below the 5.2% peak seen on August 7. The ORTEX short score has eased to 61.3, down from 70.2 on August 19 — a meaningful step away from the elevated bearish signal that characterised much of the month. Taken together, the lending market has normalised: availability is adequate, borrowing costs are moderate, and the pressure that once made this a high-tension short is dissipating.
Options positioning has returned to near-neutral after last week's more defensive tone. The put/call ratio edged up slightly to 1.19 on September 1, but that sits almost exactly in line with its 20-day average of 1.18 — a z-score of just 0.03, essentially flat. The contrast with August 24's PCR spike to 2.24 is sharp. Options traders who reached for downside protection during the brief unwind panic have largely stepped back; the current reading reflects neither aggressive hedging nor bullish conviction.
The institutional register adds colour to the demand side of the trade. Goldman Sachs holds roughly 45% of reportable shares as of June 30, up 267,000 shares from the prior period. Morgan Stanley added 1.1 million shares in the same window, lifting its stake to 21.6%. These are market-making and ETF-related flows rather than directional bets, but the scale of new buying from both banks during Q2 — when borrow conditions were tightening — is worth noting as context for the covering pressure that followed. The insider data is stale by over 20 years and carries no signal.
The setup heading into the new week is cleaner than it has been all month: a fund that is up 12% on the week, a lending market that has opened back up, and a short base that is still large but actively shrinking. Whether the remaining 74.9% short interest represents convicted bears or reluctant holders who missed the exit is the question the next few sessions will begin to answer.
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