By Eben Esterhuizen and Alicia Sellitti: Oil prices slicked downward last week amid speculation that China would soon be raising its interest rates. The country recently saw inflation hit a 25-month high, and Beijing is expected to step in to curb the excess growth. But any deflationary moves could prove problematic for if they reduce the gas giant's thirst for oil…
According to Michael Lynch, president of Strategic Energy and Economic Research, "there was a sense that [China's] economic growth would tighten all of the commodities markets." So while China is projected to increase its oil production by 800,000 barrels a day, to 9.2 million this year, "anything that reduces growth there pulls the rug out from under the huge run-up in prices."
And with oil down along with the dollar, investors may see this as the perfect time to cash out their commodities holdings.
A slower Chinese economy could well mean a decline in oil prices--but which oil stocks are expected to bear the brunt of the drop? We looked at the trading trends among short sellers to find out.
Unlike the majority of investors, short sellers bet on a stock's downside, by borrowing shares from other investors and selling them on the open market. The short is closed by buying back the shares initially borrowed--so if the short seller can buy back the stock at a lower price, he turns a profit. They have to be a bit more sophisticated than your average investor, so it can be useful to pay attention to their trades. (Click here to access free, interactive tools to analyze these investing ideas)
Here's a list of the oil stocks that have seen the biggest increase in short interest over the past 3 months. All short trends described occurred between 7/30 - 10/30. The list has been sorted by the percentage change in the short ratio. (Data sourced from AOL Money)