USO Borrow Loosens, but Shorts Hold Firm

USO enters the back half of October with a rare split in its lending signals: availability has snapped back sharply from near-zero, yet short interest remains stubbornly high and options traders have turned measurably less bearish.

The most dramatic development this week is in the borrow market, where conditions have swung from one extreme to the other. Availability collapsed to just 2.7% on October 19, meaning barely one share remained for every 37 already lent out. By October 20, that had reversed to 84%, a move of roughly 5,500% in a single session. That kind of daily swing is not unusual for USO: availability has touched zero or near-zero on multiple occasions over the past six weeks, including October 13, October 9, October 2, and September 30. The pattern points to a lending pool that is structurally thin and prone to sudden exhaustion. Cost to borrow, meanwhile, has continued its slow retreat. At 3.54% on October 20, it is down nearly 58% from a month ago, when it was running above 8% for much of September. The gap between cheap borrow and an easily exhausted pool remains the central tension in USO's lending market.

Short interest itself has barely moved on a percentage basis. Positions came in at 76.2% of free float on October 20, fractionally below the prior week's 76.2% and still well above the 69% to 70% range that prevailed through most of September. In share terms, roughly 10.1 million shares are short, down from the early-October peak near 12.6 million but largely stable over the past fortnight. The ORTEX short score has eased slightly to 68.6 from 70.4 a week ago, still firmly in elevated territory. Positioning looks entrenched rather than actively building: the big short reduction that happened in the first week of October has not been followed by a second leg lower.

Options positioning has shifted noticeably in the other direction. The put/call ratio has dropped to 1.40, nearly 2.5 standard deviations below its 20-day average of 1.54. That is the least bearish options reading in the past 30 days, and sits well below the 52-week high of 2.52. For a fund that consistently carries more puts than calls, this week's reading marks a genuine softening in hedging demand. It does not reverse the bearish overall bias, puts still outnumber calls by 40%, but it suggests fewer participants were adding downside protection into Monday's close.

The institutional register adds context to who is on both sides. Goldman Sachs holds approximately 45% of reported institutional shares, with Morgan Stanley at 21.6%. Both added to positions in the June quarter, the latest disclosed period. Healthcare of Ontario Pension Plan is a new entrant with 7.4% of institutional shares. These are largely broker-dealer and market-maker positions rather than directional macro bets, consistent with USO's role as a trading vehicle. HRT Financial, the 10% owner whose September filings show simultaneous large purchases and sales on the same day, is clearly running an arbitrage or market-making strategy rather than taking a directional view.

What to watch next is whether Monday's availability recovery holds or follows the pattern of the past six weeks, where a brief loosening is quickly followed by another pool exhaustion event, and whether the easing in the put/call ratio extends or proves a one-day anomaly ahead of any macro catalyst for crude.