USO Bears Hold Firm as Oil Retreats and Borrow Settles

USO enters the new week with short interest still near its highest level in months, but a week of price declines and easing borrow conditions have shifted the texture of the trade.

Short interest has held its ground after last week's rebuild. At 95.7% of float, the short position remains extreme by any standard, with roughly 12.7 million shares sold short. That is marginally down from the 92.9% peak flagged in last week's note, but the difference is small. What has changed is the direction of the fund itself: USO fell 3.5% over the past week to close at $158.17, meaning bears who rebuilt into a rising tape in late October have since seen that price move work in their favour. The month-on-month picture still shows USO up over 7%, so the broader trend remains contested.

The borrow market has calmed relative to the erratic prints that defined most of October. Availability has improved to around 56%, a meaningful step up from the near-zero readings that appeared on October 2, 9, 13, 19, and 30. Those spikes below 10% reflected moments when the lending pool was essentially exhausted. The current 56% reading suggests some slack has returned, though the 52-week low remains zero and further tightness cannot be ruled out given how often it has materialised. Cost to borrow has also eased materially, dropping to 3.35% from a peak above 6.4% on October 29. That is about a third lower than where it sat a month ago, making new short positions cheaper to carry than at any point in recent weeks. The ORTEX short score sits at 70.1, essentially unchanged over the past fortnight, reflecting persistent but not escalating bearish conviction.

Options positioning continues to favour protection, though slightly less so than recent weeks. The put/call ratio has dipped to 1.43, a touch below its 20-day average of 1.49, with the z-score roughly one standard deviation below that average. The PCR has been trending down from above 1.57 in early October, suggesting some modest reduction in demand for downside hedging even as short interest has stayed elevated. The 52-week range on the PCR runs from 0.56 to 2.52, so the current reading sits in broadly neutral territory within that band.

Goldman Sachs remains the dominant institutional holder with roughly 45% of reported shares, unchanged from its last filing. Morgan Stanley holds around 21.6%, with its most recent filing reflecting an increase of nearly 1.1 million shares as of June 30. These are dealer and market-maker positions typical for an ETF of this structure, not directional bets, and should be read accordingly. The insider data covers HRT Financial LP, a 10% owner, whose September trades were a mix of purchases and sales consistent with market-making activity rather than a directional view.

The key variable to monitor is whether the borrow market returns to the near-zero availability prints that have appeared multiple times over the past six weeks. Each of those episodes coincided with elevated short interest and a constrained lending pool. With short interest still above 95% of float and oil prices pulling back, the next leg of the crude market will determine whether the bears who have held their positions through two months of volatility are finally rewarded or face another squeeze.