The United States Oil Fund (USO), the commodity ETF which reflects changes in WTI futures, has continued to grind higher, but the move is now up against a larger and more expensive short base than ever before.

Positioning / Short Interest

• Shorts continued to add into a rising oil market.

  • USO short interest has trended materially higher alongside WTI crude prices due to the ongoing turmoil in the Middle East. Short interest has risen by 13.5M shares, up 3.5x year-to-date. The setup suggests investors have been increasingly fading the advance.

• Borrow costs signal increasing crowding

  • Financing rates have risen sharply alongside the expanding short interest, as incremental demand is tightening borrow supply in the lending market. While part of the positioning reflects hedge activity, the combination of short interest and borrow financing costs rising simultaneously indicate an increasingly crowded and expensive position to carry.

Technical View

• Support Failure

  • USO recently closed at $131, just below its 50-day moving average of $132, which had been acting as a dynamic support line since the start of the year. This breakdown is the first test of whether support may eventually turn into resistance.

• Momentum is diverging negatively beneath the surface

  • RSI has formed lower highs and MACD momentum has rolled over into negative territory (red dash lines). This negative divergence (vs the rising price) suggests upside participation is fading, and the rally may be transitioning from momentum expansion toward consolidation, or even a reversal.

Takeaway

• The USO setup has evolved from geopolitical and momentum-driven into a more crowded and higher-risk positioning trade. Shorts pressing into strength despite the rising carry costs, while technical momentum weakens, suggests the recent rally is losing internal confirmation.