Comparing negative oil prices and local oil price drops for short sellers

1. 2020 Negative Oil Price Short Sellers: Rule Hunters (Lightning War)
   • Battlefield: An island about to be flooded (WTI May futures contract) by an overwhelming tide of unstorage oil.
   • Tactics: They discovered a fatal weakness in their opponents (mass retail and some institutional longs)—the inability to receive and store physical oil. So, at the last moment before contract expiry, when the flood was about to drown the island, they launched a full-scale attack. Their weapons were not bearish views on oil value but exploiting delivery rules and physical limits. They forced those unable to take physical delivery to sell contracts at a loss at the last second. This was a precise financial hunt targeting specific timing, location, and rule loopholes—short-lived, intense, and non-replicable. Profitability relied on rule arbitrage, not value judgment.
2. 2026 Short Sellers: Fundamental Army (Positional Warfare)
   • Battlefield: A vast but increasingly barren plain (the global crude oil market).
   • Tactics: They do not rely on a momentary rule loophole but on a macro judgment: that supply will long-term, steadily exceed demand. Their weapons are data, models, and research reports—institutions like Goldman Sachs and JPMorgan Chase continuously forecast “oversupply.” They build short positions gradually and in batches, engaging in tug-of-war with longs who believe in “geopolitical risks” or “demand recovery.” This is a long-term game based on economic laws and supply-demand fundamentals—slow, persistent, and predictable. The core of profit is trend judgment.

Simple summary:

• Negative oil price shorts: Hunt for retail longs unable to deliver, earning “panic fees” and “storage fees.”
• Current shorts: Oppose future oversupply, earning “trend profits.”

Intrinsic connection: A two-part history of financial evolution

These two battles are not unrelated; they are like the first and second parts of the same financial evolution story, jointly revealing the deep logic of the oil market:

1. From “extreme events” to “structural trends” deepening understanding
   • Negative oil prices were an extreme “stress test,” showing the world how absurd prices can become when physical logistics and storage systems collapse. It taught the market that prices have no absolute lower limit.
   • The current shorting is a rational response after digesting that lesson, focusing on a longer-term, more certain “structural surplus” trend. If negative prices are an “acute shock,” then today’s bearish bets are a diagnosis of “chronic decline.”
2. Market mechanism self-correction and shift in focus of game
   • The negative oil price exposed the huge risks of WTI contract rules under extreme conditions, prompting exchanges, regulators, and investors worldwide to revisit rules, risk controls, and product design (such as the “Oil Treasure” incident reforms).
   • Because some rule loopholes have been patched, extreme “forced liquidation” modes are harder to replicate. The focus of the battle between bulls and bears has shifted from “exploiting rule loopholes” back to the fundamental “supply and demand.” Today’s shorts are fighting on a more “normal” battlefield with more traditional methods.
3. Both point to the same future: the pain of energy transition
   • The two shorting waves, though triggered by different sparks, both reflect the long-term challenges faced by the fossil fuel era. Negative prices were a sudden shock to the old energy system caused by the pandemic; current shorts price in the long-term trend of renewable energy substitution, energy efficiency improvements, and non-OPEC+ increased production. They jointly indicate that the oil market’s shift from “scarcity anxiety” to “surplus anxiety” may have already begun.

Conclusion

The shorting during the negative oil price period was a “financial surprise attack” exploiting physical limits and rule loopholes; today’s shorting is a “strategic encirclement” based on supply-demand fundamentals.

The former is a product of market short-term failure; the latter reflects long-term market expectations. Their connection is a history from “black swan panic” to “gray rhino consensus.” Understanding this evolution helps explain why today’s shorts are so resolute—they are not betting on another “perfect storm,” but on a “new normal” dominated by oversupply that they believe has already arrived.

Prolonged low oil prices: multiple institutions forecast that under oversupply, Brent crude could drop to $53–65 per barrel by 2026, possibly bottoming around $56 mid-year. Goldman Sachs predicts as low as $40 in a pessimistic scenario.

Trend-following hedge funds and CTAs (Commodity Trading Advisors): They are the biggest potential losers. Their strategy is trend-following; once the downtrend is confirmed broken, their automated systems trigger “short covering” (buying to close), which accelerates oil price rebounds, creating a “kill the longs, kill the shorts” stampede. Their losses could be rapid and substantial.

In fact, this price fluctuation is a stress test for Wall Street capital. Although prices fell quickly, funds holding short positions face even greater challenges ahead.