Bart Melek at TD Securities highlights that money managers currently hold significant short positions in crude oil, which he attributes to what he considers misinterpretations of market conditions, such as pessimism regarding Chinese demand and expectations of an impending oil glut [1]. According to Melek, these positions are based on beliefs that China will experience demand destruction, persistently low import levels, and that seaborne inventories are not declining at a record pace, alongside forecasts for a surplus in the coming months [1].
TD Securities notes that short exposure in Brent crude has reached levels not seen since late 2025, a period marked by concerns over a three million barrels per day surplus [1]. However, the bank argues that ongoing inventory erosion is likely to persist and deepen through the summer, which could trigger a short-covering rally [1]. Melek states, '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' [1].
The bank projects that, should the current crisis continue to threaten oil supplies and force money managers to cover their short positions, there could be an additional $10–15 per barrel upside in the near future [1]. The breaking of key resistance levels in Brent further supports the expectation of a shift in positioning as short covering risks increase [1].
CONCLUSION
TD Securities sees the current extreme short positioning in oil as vulnerable to a squeeze, with the potential for a significant price rally if supply concerns persist and money managers are forced to cover. The bank anticipates $10–15 per barrel of additional upside in the near term, driven by ongoing inventory erosion and shifting market sentiment.