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 unsold 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 expiration and the flood engulfs 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 kill targeting specific timing, location, and rule loopholes—short-lived, intense, and non-replicable. Profits came from 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: targeting retail longs unable to deliver physical oil, earning “panic premiums” and “storage fees.”
• Current shorts: fighting against future oversupply, earning “trend profits.”

Intrinsic connection: A two-part history of financial evolution

These two battles are not unrelated; they are the upper and lower parts of the same financial evolution story, jointly revealing the deep logic of the crude 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 educated 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 oversupply” trend. If negative oil prices are an “acute shock,” then today’s shorts are a diagnosis of “chronic decline.”
2. Market mechanism self-correction and shift in focus of game
   • Negative oil prices 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 after the “Crude Oil Treasure” incident).
   • Because some rule loopholes have been patched, extreme “short squeeze” modes are harder to reproduce. The focus of the game between bulls and bears has shifted from “exploiting rules” 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 oil prices were a sudden shock to the old energy system caused by the pandemic; current shorts are pricing in the long-term trend of renewable energy substitution, efficiency improvements, and increased non-OPEC+ production. They jointly indicate that the oil market’s shift from “scarcity anxiety” to “oversupply 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 shorts are 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 fall to $53–65 per barrel by 2026, possibly bottoming around $56 mid-year. Goldman Sachs has a pessimistic forecast of $40 per barrel.

Trend-following hedge funds and CTAs (Commodity Trading Advisors): They are the biggest potential losers. Their strategy is to follow trends; once the downtrend is confirmed broken, their automated systems trigger “short covering” (buying to close), which can accelerate oil prices upward, creating a “longs killing shorts” stampede. Their losses could be very rapid and large.

In fact, this price fluctuation is a stress test on Wall Street capital. Although it dropped quickly, funds holding short positions will face even greater challenges ahead.