Oil: Short positions vulnerable to squeeze – TD Securities

Bart Melek at TD Securities argues that money managers are heavily short crude based on what he views as misread market conditions, including pessimism on China demand and expectations of an oil glut. With deficits set to persist and deepen through summer and Brent breaking key resistance, the bank expects positioning to shift as short covering risks grow.

Managed money shorts at extremes

"We have long argued that ongoing inventory erosion later this summer would trigger a short-covering rally."

"That process now appears to be unfolding more rapidly than expected."

"We see $10–15/ bbl of additional upside in the not-too-distant future should the crisis continue to threaten oil supplies and force money managers to cover their short positions."

"Based on what we view as misplaced interpretations of market conditions, including expectations that China will have a cycle of demand destruction, persistently depressed import levels, the belief that seaborne inventories are not falling at a record pace, and forecasts for an "oil glut" in the coming months, money managers are heavily short."

"Short exposure in Brent is at levels not seen since late 2025, when the market was concerned about a three million b/d surplus."