BOSTON (Reuters) – The United States Oil Fund was sitting on more than $700 million in unrealized losses at the end of March, several weeks before the market fully grasped the outsize role it would play in this month’s unprecedented collapse in the price of front-month oil contracts. U.S. 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 on Tuesday 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 U.S. Securities and Exchange Commission.
Investors, nonetheless, have piled into the fund. Net deposits have totaled more than $3 billion this month amid heavy losses, Refinitiv data shows. Individual investors are in a battle with hedge funds, which are using short positions to bet on further declines in the fund. Nearly 50 U.S. money managers and wealth advisers reported holding small amounts of USO shares for clients at the end of March, SEC disclosures show. The trust division at Chicago-based First Midwest Bank, for example, reported holding about 64,000 shares for investors at the end of the first quarter. Meanwhile, short interest in USO is about $94 million, up about 1% in the past week, according to analyst Ihor Dusaniwsky at S3 Partners LLC. 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. USO is now recasting its investment strategy. It 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 Wednesday, a previously announced reverse stock split went into effect, reducing outstanding shares to 185 million from about 1.5 billion. The move was designed to add liquidity while protecting shares from delisting. Bloomberg sources suggest that as of two weeks ago, the USO held 25 percent of the outstanding shares of May 2020 WTI oil futures. Shares had been trading around $2 and risked being delisted if they fell below $1. Post-split shares were up about 6% at $18 on Wednesday, but they are still down about 80% this year. Nick Note: if you or I had 24% of the volume (and open interest) they would double or triple our margins sighting concentration. But the fix was in with Mr McFuck of the CME. So not only where they allowed to concentrate positions they did so with a cute arrangement on margins and allowed to not have to mark to market or realize losses. A little birdie told me that their is a billion dollars in loses to allocate to someone some where… Including i am told 100 million for the pricks at eTrade….. it could not happen to a nicer group of ASHOLES! I think we are going to get to fuck the monkey again!