Big Crude Oil Futures in a Whopping $726 M Unrealized Losses!


  • The United States Oil Fund was sitting on more than $700 million in unrealized losses at the end of March.
  • USO also booked actual realized losses of $466.4 million during March.
  • Several weeks before the market fully grasped the outsized role it would play in this month’s unprecedented collapse in the price of front-month oil contracts.

The United States Oil Fund (USO), the world’s most popular exchange-traded fund linked to crude oil prices, was sitting on US$725.5 million in unrealized losses on futures as of the end of March 2020, writes Tsvetana Paraskova for Oil Price.

The fund said in an SEC filing this week.

Crude oil futures plummet

US crude oil futures plunged to -$37.63 a barrel on April 20, the first time in history the contract traded in negative territory.

Exchange-traded products like USO, along with other investors, were caught holding positions that would have required them to take delivery of crude barrels with few places to put it, leading to a panicked sell-off.

The $3 billion exchange-traded product known as USO revealed that it had an unrealized loss of $726 million at the end of March.

USO also booked actual realized losses of $466.4 million during March, according to a filing with the US Securities and Exchange Commission.

Investors in tussle with hedge funds

Investors, nonetheless, have piled into the fund. Net deposits have totaled more than $3 billion this month amid heavy losses, Refinitiv data show.

Individual investors are in a battle with hedge funds, which are using short positions to bet on further declines in the fund.

Short interest in USO is about $94 million, up about 1% in the past week, according to analyst Ihor Dusaniwsky at S3 Partners LLC.

Bloomberg sources suggest that as of two weeks ago, the USO held 25 percent of the outstanding shares of May 2020 WTI oil futures.

Pension fund void

Analysts have questioned whether USO is an appropriate investment for retail investors, given that it makes concentrated bets on complex futures contracts.

Individual investors, however, are filling a void left by pension funds, Colorado-based energy analyst Phil Verleger of PK Verleger LLC said in a research note this week.

A drop-off in pension fund investing left many commodity futures markets to stagnate. Oil, though, continued to expand as individual investors stepped in for pension funds,” Verleger wrote in his note.

According to Reuters estimates, the USO’s return year to date is -83%.

Investment strategy

USO is selling its position in front-month June crude futures contracts, and has been diversifying into later-dated contracts to avoid a repeat of last week’s panic.

On April 29, a previously announced reverse stock split went into effect, reducing outstanding shares to 185 million from about 1.5 billion. The move is designed to add liquidity while protecting shares from delisting.

Shares had been trading around $2 and risked being delisted if they fell below $1. Post-split shares were up about 6% at $18, but they are still down about 80% this year.

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Source: Oil Price


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