Petrofac share price short squeeze explained: why did PFC pop?

The Petrofac (LON: PFC) share price went parabolic on Wednesday, leading to one of the biggest short squeezes in London this week. The stock surged to a high of 37.25p, its highest point since November. At its peak, the stock was up by more than 150% from its lowest point this year.

Petrofac trading statement

Petrofac is a company in the energy sector that builds offshore and onshore projects. Over the years, the company has handled over 200 major projects, mostly in the North Sea and in the Middle East. In July, it received a huge order from Abu Dhabi.

Petrofac has been the most shorted stock in London recently. Data compiled by Research Tree shows that it has a short interest of 14.3% and more investors are actively shorting it as the volume rose by 5.4% this month.

Short-sellers have been highly rewarded as the stock has plunged by more than 64% from its highest point in 2023. This crash has brought its total market cap to more than 162 million pounds.

The Petrofac short squeeze happened after the company published its trading statement and a major contract win. In a statement, the firm said that it expects to make over $2.5 billion in revenue. Its EBIT loss for the year will come in at minus $180 million due to a $110 million one-off write-off. It also has a huge order backlog of over $8 billion, a record. The CEO said:

Petrofac share price also soared after the company and Hitachi Energy announced a new contract with TenneT, a company that operates the Dutch-German Transmission System. The deal will see the operator expand its wind capacity in the North Sea.

Petrofac will be involved throughout the project. Specifically, the company will do engineering, procurement, construction, and installation of offshore platforms and other parts of the onshore.

As inflation and interest rates start falling, there is hope that the company will receive more contracts in 2024.

PFC chart by TradingView

The PFC share price formed a small double-bottom pattern at 16.78p in December. In price action analysis, this is one of the most popular bullish signs, which also explains why the stock had a short-squeeze. That squeeze pushed it to test the 50-day Exponential Moving Average (EMA) on the daily chart.

I suspect that the upward push could continue in the coming months as bulls target the key resistance point at 45.54p, the lowest point on March 29th. If this retest happens, there is also a possibility that it will resume the bearish trend as the hype eases.