Please ensure Javascript is enabled for purposes of website accessibility

USO Oil Fund Crashes Again as Crude Prices Tumble

By John Bromels - Apr 27, 2020 at 12:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The largest U.S. oil ETF is making more big changes to stay afloat.

Shares of the United States Oil Fund (USO 3.00%), the largest exchange-traded fund (ETF) directly exposed to U.S. oil markets, fell 16% in morning trading on Monday. The slide came after the fund's manager, USCF, announced in an SEC filing that it planned to sell off all of the fund's current (June 2020) oil futures contracts in favor of longer-term futures contracts.

The announcement also sent benchmark WTI Crude prices lower, as traders followed USCF's lead and dumped their June contracts, which govern currently quoted WTI prices. By noon, WTI Crude prices had fallen 26%, to about $12/barrel. Other global oil prices also tumbled, with international benchmark Brent Crude down 7.8% for the morning.

A screen displays the word "oil," followed by a red arrow pointing downward.

Image source: Getty Images.

Looking long term

The move is extraordinary, as the USO Fund's stated mission is to mirror current U.S. benchmark crude oil prices, allowing investors to receive the economic equivalent of an investment in WTI Crude without directly purchasing futures contracts. 

The June contract sell-off is seen as an acknowledgement that U.S. oil prices -- negatively affected by oversupply, a lack of storage, and suppressed demand due to coronavirus travel restrictions -- are unlikely to recover in the short term. One week ago, on Monday, April 20, May WTI Crude futures prices plunged to negative $37.63 per barrel as physical storage constraints prevented holders from meeting their obligations under May contracts. 

The fund will now invest in futures as far out as June 2021. It plans to make these changes over three days, ending Wednesday, April 29. Previously, it initiated a reverse 8-for-1 split, which takes effect Tuesday.

The USO has dramatically changed its portfolio makeup over the past two weeks, reducing its exposure to current contracts from 80% to zero, and assigning 40% of its portfolio to prices more than three months out. 

John Bromels has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

United States Oil Fund LP Stock Quote
United States Oil Fund LP
USO
$74.21 (3.00%) $2.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.