OIL, One Of The Largest Oil ETNs, Will Be Shut Down And Liquidated

David Dierking

I wrote only about an hour ago how the ProShares Ultra Bloomberg Crude Oil Fund (UCO) announced it was executing a 1:25 reverse split in order to help avoid regulatory issues and stop the share price from tumbling under $1.

Turns out the news coming from the oil industry is just heating up.

One of the largest oil funds in the industry, the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL), will be exercising its option to redeem in full and close out the note on April 30th. All new note creations have already been halted.

Early redemption features are common in exchange-traded notes and we've seen a bunch of them being exercised over the past several weeks. In a recent article talking about GUSH and DRIP, I provided a list of ETNs being shuttered. They included everything from financials to energy to volatility and beyond.

Usually, they get triggered when there are significant losses over a specific period of time. While I wasn't able to immediately find what the trigger level might be digging through OIL's prospectus, it's down more than 80% year-to-date, which is likely what triggered the redemption.

OIL_chart

There are more than 30 different exchange-traded products that have been liquidated and/or shut down so far in 2020 with many more likely to come. ETNs are particularly at risk with their early redemption features and can result in illiquidity if you ever try to move your shares.

Fully expect that this is the type of stuff that can happen in a highly unstable market. Total losses in these products aren't uncommon.

Note: The United States Oil ETF (USO) just announced that it has halting all new creations of shares. It could be the next to eventually shut down.

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Comments (10)
No. 1-5
cccp1990
cccp1990

Hi David, I still own OIL ETN. I received a tender offer of $50/share. What are the implications if I don't take the offer. Could I lose more if the fund is closed? Should I wait it out to see the fund recovers? The fund expiry date is 2036. I will appreciate your thoughts.

cccp1990
cccp1990

Hi David, I own OIL ETN. I received a tender offer for a cash settlement of $50/share. I am wondering if I should take the money or decline. Not sure what the implications are if I don't take the offer. As per the fund prospectus, the fund doesn't expire until 2036. I will appreciate your thoughts and advice.

Josef161
Josef161

Hello david,
I have bought some OIL ETFs yesterday so i wonder what i should do? Should i keep them until april 30th? Another thing is that i have to pay taxes on any gains if i don't keep my investment for more then 365 days, do you think that thd irs will care?

Chad780
Chad780

How do options work when this happens? Never experienced this before. I am holding call options for 1/22 and 1/21? Thanks

cristo
cristo

Hey David, if you own USO or UCO should you take your loses and get out?


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