While the oil industry continues to face pricing pressures due to global oversupply, one market metric indicates that there may be reason for optimism for oil prices in the short-term. According to the most recent data from Reuters, hedge funds currently have their largest short exposure to WTI in nearly five years.

Primed For A Squeeze

This graph shows the ratio of long-to-short WTI positions by hedge funds and other money managers over the past decade.

The current ratio of 1.6 represents the lowest net long exposure to oil since September of 2010. With this much institutional money currently shorting oil, it’s no wonder that the United States Oil Fund ETF USO 0.45% is down 32.2 percent in the past three months. However, any uptick in prices in coming weeks could trigger a major short covering scramble that could send prices surging.

Recent History

After peaking at over 14 in summer of 2014, the hedge fund long-short ratio nosedived…

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