The United States Oil Fund (USO) is an exchange-traded product (ETP) that aims to match daily price fluctuations of West Texas Intermediate (WTI) light, sweet crude oil with investment returns. The United States Oil Fund is for short-term investors who can keep track of their positions and are positive on WTI crude oil short-term futures contracts.
Is the USO ETF a wise investment?
The USO ETF (NYSEARCA:USO) has a great chart and solid fundamentals. Purchase it. According to the most recent OPEC oil market report, the following demand outlook: Despite some offsetting revisions, world oil demand growth in 2021 remains unchanged from last month’s estimate, at 6.0 million barrels per day.
Is it safe to invest in the USO ETF?
Mike Venuto, co-founder of Toroso Asset Management, an ETF advising firm, says, “USO is one of the most risky ETFs you can purchase, and you’ll now pay a premium to acquire it.” A request for comment from the USCF was turned down. A warning label has always been required for commodity ETFs like USO.
Why has the USO declined so drastically?
Crude oil prices plummeted to 20-year lows in April 2020 as a result of the COVID-19 epidemic. The price of USO fell more than 30% to just about $2 per share in late April, and new trades were halted as the fund’s managers began implementing fundamental modifications in an attempt to avoid a catastrophic collapse. Following that, USO management announced a 1-8 reverse share split for the company, which will take effect after the market closes on April 28, 2020.
Is USO keeping track of oil prices?
The USO is designed to track the WTI futures spot month contract’s price movements. The positions on the front month contract will be carried over to the second front contract if it is less than two weeks away from expiration.
Because of its rollover schedule, USO has a different WTI exposure than the WTI front month futures contract. The USO exposes nearly half of its pricing exposure to the second front month contract price since it rolls over its front month contract two weeks before it expires.
The performance of the USO has historically differed slightly from that of the WTI front month contracts. Despite the USO’s best efforts to replicate the front-month WTI price, roll yield, transaction expenses, and management fees cause performance to diverge from WTI spot prices.
How does the USO generate revenue?
The United States Oil Fund LP (USO) is a NYSE Arca-listed exchange-traded security whose shares can be bought and sold. The daily % changes in the net asset value (NAV) of USO’s shares should match the daily percentage changes in the spot price of light sweet crude oil delivered to Cushing, Oklahoma, as determined by the daily changes in the Benchmark Oil Futures Contract. USO aims for the average daily percentage change in USO’s net asset value to be within plus/minus 10% of the average daily percentage change in the price of the Benchmark Oil Futures Contract over any 30-day valuation period.
A BENCHMARK OIL FUTURES CONTRACT OR LIGHT SWEET CRUDE OIL INVESTMENT IN USO SHOULD NOT BE CONSIDERED A LIGHT SWEET CRUDE OIL INVESTMENT.
USO IS NOT A PROXY FOR TRADING DIRECTLY IN THE OIL MARKETS, AND THESE RISKS ARE REAL.
The Benchmark Oil Futures Contract is the NYMEX’s near-month West Texas Intermediate (WTI) crude oil futures contract for light, sweet crude oil delivered to Cushing, Oklahoma, unless the near-month futures contract is within two weeks of expiration.
USO generally invests in listed crude oil futures and other oil-related instruments, but it may also participate in forwards and swaps. Cash, cash equivalents, and US government liabilities with remaining maturities of two years or less will be used as collateral for these investments.
The Benchmark Futures Contract and oil futures contracts for light, sweet crude oil traded on NYMEX and ICE Futures with the same maturity month as the Benchmark Futures Contract have historically helped USO achieve its investment goal. Until recently, USO’s requirement to invest in crude oil futures contracts other than the Benchmark Oil Futures Contract was limited. Market conditions, changing regulatory requirements, and risk mitigation measures introduced by certain of USO’s service suppliers have forced USO to invest with more discretion than it has previously. Specifically, the considerations compelling USO to exercise additional discretion during April 2020 included, but were not limited to:
- USO’s investments in the Benchmark Oil Futures Contract and the ICE WTI Contract were subject to responsibility levels and position restrictions established by NYMEX and ICE Futures.
- The capacity of USO to invest in the Benchmark Oil Futures Contract was hampered by its futures broker.
- In a relatively short period of time, a considerable number of USO shares were purchased.
Due to these occurrences, USO’s ability to invest a significant amount of its assets in the Benchmark Oil Futures Contract was significantly hampered. As a result, on April 17, 2020, USO began investing in oil futures contracts other than the Benchmark Oil Futures Contract, in accordance with its prospectus authorization. Despite improved crude oil market conditions and the addition of new futures brokerage relationships that give USO more trading capacity, the company continues to invest in oil futures contracts other than the Benchmark Oil Futures Contract, and only invests in the Benchmark Oil Futures Contract on a limited basis.
As a result of the foregoing, USO is currently unable to pursue its investment objective with the same level of success as it has in the past, prior to the aforementioned market conditions. Furthermore, there is considerable uncertainty as to whether USO will be able to achieve the same level of success as before in accomplishing its investment objective as a result of such market conditions, regulatory limits imposed on USO, and the risk mitigation measures discussed below. USO’s limited ability to invest in the Benchmark Oil Futures Contract, combined with its investments in oil futures contracts other than the Benchmark Oil Futures Contract, has impacted and may continue to impact its performance, making it difficult for USO to closely track the Benchmark Oil Futures Contract or meet its investment objective of having the change in its NAV for any period of 30 consecutive valuation days be within plus/minus t. The price differential between the Benchmark Oil Futures Contract and USO’s per share NAV could approach 10% in the future, and has done so in the past on a daily basis. For example, in April 2020, changes in the NAV of USO differed by -16.527 percent from changes in the price of the Benchmark Oil Futures Contract. USO would not have accomplished its declared investment aim if the deviation had maintained for 30 consecutive valuation days. Despite the fact that there were deviations greater than plus/minus 10% on a few days in April, as shown in the chart below, titled Rolling 30-day average difference between USO’s NAV and the Benchmark Oil Futures Contract, this trend did not continue on a rolling 30-day basis, and USO met, and continues to meet, its investment objective. For more information on the impact of recent events on USO’s performance in April 2020, see the current prospectus on the website.
USO’s investing discretion parameters are outlined and explained in length in the prospectus. USO has the authority to adjust such criteria if regulatory regulations, market conditions, liquidity requirements, or other considerations necessitate it. On the portfolio holdings part of the website, USO discloses its portfolio holdings as well as its investment plans in terms of the type and percentage of investments in its portfolio.
- Intra-day pricing, as well as market, limit, and stop orders, are all available through USO.
- Each day, USO publishes its portfolio holdings, market price, NAV, and TNA on its website. It also posts USO’s target portfolio for the end of the roll or any rebalance on the internet each day, based on market conditions and regulatory requirements.
Can the USO make a comeback?
Is the price of USO set to $5.50 for the next year and a half? At the very least, this trade suggests that possibility. As a covered call, some upward potential is given up in exchange for the short call’s income. In this example, the call’s yield over the life of the trade is 17.3 percent (about 20 months).
Even after 20 months, that’s not a bad yield in current economy. Given how inexpensive USO is, there’s also little risk in this deal. However, because this isn’t the first time a large ETF/ETN has blown up, there may be some counterparty risk. This is a rather safe transaction to make if you are ready to take a chance that USO may rebound to some level by 2022.
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USO is a type of stock.
The United States Oil Fund, or USO, is an exchange-traded fund (ETF) that tracks the daily price fluctuations of WTI light, sweet crude oil. “Daily changes in percentage terms of its shares’ NAV to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in price of USO’s Benchmark Oil Futures Contract, less USO’s expenses,” according to the firm’s website.
Is UCO a long-term investment that pays off?
UCO, on the other hand, should never be included in a long-term buy-and-hold portfolio; it’s simply too risky, and the fund’s intricacies make it likely to lose money over time, independent of changes in current oil prices, due to the negative influence of contango.
What was the United States of America (USO) and what did they do?
Mary Ingraham started the USO in 1941 in response to President Franklin D. Roosevelt’s call for morale and recreation activities for US uniformed military members. Roosevelt was chosen as the organization’s honorary chairman. The Salvation Army, YMCA, Young Women’s Christian Association (YWCA), National Catholic Community Service, National Travelers Aid Association, and the National Jewish Welfare Board were among the six civilian organizations who responded to this request. To help US troops, they were joined together under one umbrella. Roosevelt stated that he intended “these private organizations to handle the personnel in the military forces’ on-leave entertainment.” “The government was to build the structures, and the USO was to seek private funding to carry out its core mission: raising troop morale,” historian Emily Yellin writes.
Thomas Dewey was the first national campaign chairman, raising $16 million in the first year. Prescott Bush, the future senator, was the second chairman. The USO was founded on February 4, 1941, in New York, with its first facility in DeRidder, Louisiana. As a “Home Away from Home” for GIs, more USO facilities and clubs opened around the world. The USO club offered dances and social events, as well as movies and music, a quiet spot to converse or write a letter home, and a free cup of coffee and an egg.