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The World’s Largest Oil Fund Is Sitting On $725 Million In Unrealized Losses

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, the fund said in an SEC filing this week.

The fund, one of the most popular oil-tracking ETFs for retail investors, was one of the reasons behind the historic decline in May WTI futures at the start of last week. In the days leading up to May WTI futures going negative, the USO fund existed its May positions by rolling it into the June and July contracts. The switch into the larger June contract only added to the number of total paper barrels in the market, not to mention that the June contract will expire at a time when even less storage is expected to be available.

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

According to the fund’s monthly account statement to the SEC from this week, the USO booked a realized loss on futures of US$466.5 million as of March 31, 2020. As of that date, when oil prices were already heading south due to the crash in oil demand and the Saudi-Russian price war, the fund was sitting on unrealized losses of US$725.5 million on the market value of futures.

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

On Monday, the USO crashed oil markets again, after it said it planned to sell off all of its WTI contracts for June delivery—that’s all its front-month contracts. Instead, the fund will now focus on futures contracts that are further out. The USO’s breakdown will now be comprised of 30% in the July contract, 15% each in the August, September, October, and December contracts, and 10% in the June 2021 contract.

By Tsvetana Paraskova for Oilprice.com

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