Oil Shorts Are Crowded, 3 Names That Could Bring on a Squeeze

Key Points

• Positioning in the oil markets shows potential for a "pain trade," where a squeeze in supply could spike oil prices much higher than they are today.
• Three names stand out as the first line of defense for drilling to spike production on this potential bottleneck.
• With unique business models, each represents a diversified way to outperform in an oil bull cycle.

There is a concept on Wall Street called the “pain trade”, part of the trader lingo that signifies an opportunity to bet against the consensus and profit off the pain that most of the crowd could be set to feel. As everyone knows, there are no saints on Wall Street, and seeking to profit from the mistakes of others is just part of the zero-sum game that is the stock market.

Today, one such trade has become painfully obvious for those who are willing to look.

In the energy sector, short positions around oil have built up enough to trigger a short squeeze, as the consensus view is now that inflation has been successfully tamed. There are no signs of a resurgence on the horizon that would bring oil prices higher than they are today.

This assumption might have been right until a few months ago, but as of September 2025, there are reasons to believe this case might change soon.

Looking into the best tail risk opportunities, investors could (and should) add names like Transocean Ltd. NYSE: RIG, Patterson-UTI Energy Inc. NASDAQ: PTEN, and Helmerich & Payne Inc. NYSE: HP to a watchlist titled “Oil Winners.”

The reason is that if the Federal Reserve ends up cutting interest rates in September, oil demand could see a significant swing higher, creating a bottleneck in the current supply that could lead to a price spike.

Transocean’s First Line of Defense

When and if these bottlenecks come for the oil industry, the drilling space will see the first positive impact. Before production and refinery giants can process crude oil into the products needed for fuel and other consumer products, there must be crude oil in the first place.

If supply starts to lag demand, as is the tail risk setup in this pain trade, then drillers like Transocean will get the first call to ramp up new activity and bring on the much-needed supply. That being said, one main factor differentiates Transocean from the other drillers on today’s list.

This company operates one of the largest and most advanced deepwater rig fleets in the world, exposing it to oil demand trends in and outside the United States. This positioning allows it to lock in long-term contracts with some of the biggest oil players worldwide, making it the first line of defense upon an oil demand rebound.

That being said, the company’s $3 billion market capitalization is another advantage, as it would be as easy as a whiff of optimism to get this name to a $6 billion size, representing over 100% upside under the right conditions. These conditions are becoming increasingly probable with each passing week.

A Focus on U.S. Reform: Patterson-UTI Energy

Moving into the land drilling rigs, unlike Transocean’s deepwater facilities, Patterson-UTI becomes a different play. With the United States likely to remove fracking and shale drilling restrictions placed upon it over the past couple of years, this company could be cleared to reel in a massive earnings per share (EPS) expansion.

Such an expansion is already the norm among Wall Street analysts, as the current consensus view is set for a valuation of $7.9 per share (calling for 40.4% upside from today’s prices), though the rating remains a Hold. The one catalyst for this to change into a Buy is the simple tipping point of oil demand coming back online.

Like Transocean, this company’s size presents an advantage at only $2.1 billion, a tactical addition to any portfolio looking to ride this pain trade higher. Over the most recent quarter, some institutions started taking advantage of this setup, as seen through a net $202 million in buying activity.

1 Ace Up Helmerich & Payne’s Sleeve

All of these businesses are known for being capital-intensive, meaning they require substantial investments to initiate or expand their drilling operations. While Helmerich & Payne is similar to Patterson-UTI’s model for land drilling and fracking, there is one ace up its sleeve that can make it a preferred name in that space.

That ace is technological advantages, as this name carries some of the most advanced equipment in land drilling, reducing costs and investment requirements. Whether this efficiency becomes a priority in the coming demand wave is up for debate. Still, it would be foolish not to keep this name on this watchlist for potential outperformance.

When and if Helmerich & Payne starts to outperform Patterson-UTI on oil news, that will be a clear sign for investors that they can lean more toward one over the other. This advantage could be one of the reasons why some Wall Street analysts have recently shifted their views on Helmerich & Payne.

As of late August 2025, Marc Bianchi from TD Cowen rated Helmerich & Payne as a Hold, although his valuation target suggests otherwise. With a $27 valuation, Bianchi calls for 35% upside from today’s prices, which is significantly better than the consensus view for a Hold valued at $22.2 only.