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Perhaps no fund has undergone as many changes in the past two weeks as the United States Oil Fund (USO) has.

What started as a fairly simple product designed to track the performance of near-term oil futures contracts has evolved into an amalgamation multiple products and expiration dates as much as a full year out.

In April, USO was 100% exposed to the May 2020 WTI crude contract. That's the one that briefly plunged to below -$40 a barrel. The fund took severe losses and needed to complete a 1:8 reverse split in order to just stay afloat.

It rolled into the June contracts, but, anticipating the same thing might happen again with the June contract, announced it was expanding into longer-dated oil futures. As it moved out of May contracts, it took positions in June, July and August contracts, whereas it would have moved solely into June contracts under the old mandate.


Because of its desire to move into longer-dated futures contracts, roll costs and different exposures caused it to disconnect from short-term oil prices. The roll costs, in particular, were damaging.

But that wasn't enough.

USO then said it will buy contracts with expirations as much as one year into the future to further spread out risk and add liquidity. As of yesterday, USO's portfolio now looks like this:

Screen Shot 2020-05-01 at 9.13.42 AM

And despite all of those changes, USO is now taking it one step further.

USO has been fully invested in just WTI crude oil contracts, but that's about to change. From the latest prospectus update:

Screen Shot 2020-05-01 at 9.33.39 AM

This might be a bit hard to read so let me highlight the important part.

"USO, in addition to investing in the Benchmark Oil Futures Contract, may also seek to achieve its investment objective by investing primarily in other futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels..."

Basically, it can invest in anything that can be put into a barrel - WTI, Brent, gasoline, natural gas, you name it!

USO is no longer a pure crude oil play. It's become a play on the entire energy commodity sector. Keep that in mind the next time you want to speculate on the direction of oil prices!

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