10-Q: USO Q2 2025: NAV Outperforms Benchmark Amid Volatility

United States Oil Fund, LP reports a 2.92% NAV decrease for Q2 2025, outperforming its benchmark by 2.20% despite crude oil price volatility and market contango.

Summary

• Net income (loss) for the six months ended June 30, 2025, was $(32,658,947), a significant decrease from $260,223,463 in the same period of 2024.
• Net asset value (NAV) per share decreased to $73.25 at June 30, 2025, from $75.45 at December 31, 2024.
• The market value per share was $73.11 at June 30, 2025, compared to $75.55 at December 31, 2024.
• Total assets increased to $1,226,307,166 at June 30, 2025, from $1,099,083,929 at December 31, 2024.
• Total liabilities significantly increased to $96,486,212 at June 30, 2025, from $10,860,442 at December 31, 2024, primarily due to $80,577,570 payable for shares redeemed.
• Limited Partner shares outstanding increased to 15,423,603 at June 30, 2025, from 14,423,603 at December 31, 2024.
• The Benchmark Oil Futures Contract price decreased by approximately 9.22% from December 31, 2024, to June 30, 2025.
• USO's per share NAV decreased by approximately 2.92% over the same period, outperforming its benchmark by 2.20%.
• The crude oil futures market experienced states of mild contango during the six months ended June 30, 2025.
• Average daily total net assets for the six months ended June 30, 2025, were $1,005,224,202, down from $1,375,283,375 in 2024.
• Dividend and interest income earned decreased to $20,009,370 for the six months ended June 30, 2025, from $33,157,315 in 2024.
• Total expenses decreased to $4,235,341 for the six months ended June 30, 2025, from $5,591,838 in 2024.
• Brokerage commissions increased to $781,386 for the six months ended June 30, 2025, from $741,142 in 2024, due to a higher number of Oil Futures Contracts held and traded.
• USO held 13,845 NYMEX WTI Crude Oil Futures CL contracts as of June 30, 2025, and exceeded NYMEX accountability levels during the period, holding a maximum of 16,232 contracts, though no action was taken by NYMEX.

Sentiment

Score: 6

Explanation: Despite a net loss and a decrease in NAV per share due to declining crude oil prices, USO successfully outperformed its benchmark by 2.20% for the six months ended June 30, 2025, and maintained its tracking within the target range. Expenses decreased, but interest income also declined. Ongoing legal proceedings and market volatility remain factors, but the core objective of benchmark tracking was met effectively.

Positives

• USO's actual total return of (2.92)% for the six months ended June 30, 2025, outperformed its benchmark's estimated total return of (5.12)% by 2.20%.
• The average daily difference between USO's NAV change and the Benchmark Oil Futures Contract change was 0.012% (1.2 basis points) for the 30-valuation days ended June 30, 2025, indicating performance within the +/10% tracking goal.
• Total fees and other expenses excluding management fees decreased for the six months ended June 30, 2025, compared to the same period in 2024, primarily due to a decrease in tax reporting and professional fees.
• The Optimum Strategies Action lawsuit against USO and USCF was dismissed with prejudice on March 15, 2023, resolving one of the legal proceedings.
• USO has an unlimited number of shares available for issuance, following an SEC declaration of effectiveness on August 29, 2023, providing flexibility for capital raising.

Negatives

• Net income (loss) for the six months ended June 30, 2025, was a significant loss of $(32,658,947), a substantial decline from a gain of $260,223,463 in the same period of 2024.
• USO's per share NAV decreased by approximately 2.92% from December 31, 2024, to June 30, 2025.
• The Benchmark Oil Futures Contract price decreased by approximately 9.22% over the six months ended June 30, 2025.
• Average interest rates earned on short-term investments were lower during the six months ended June 30, 2025, compared to the same period in 2024, leading to lower income.
• The crude oil futures market experienced states of mild contango during the six months ended June 30, 2025, which tends to cause the value of an investment in the next month futures contract to underperform the spot price of crude oil.
• Total liabilities significantly increased from $10,860,442 at December 31, 2024, to $96,486,212 at June 30, 2025, primarily due to $80,577,570 in payable for shares redeemed.

Risks

• Market risk arising from changes in the market value of commodity futures and swap contracts, specifically crude oil price risk.
• Credit risk that counterparties (clearinghouses, FCMs, or OTC swap counterparties) may fail to perform their obligations.
• Liquidity risk due to market conditions or daily price limits on commodity exchanges, which could prevent prompt liquidation of positions.
• Impact of contango and backwardation, natural market forces that can cause the fund's total return to differ from a hypothetical direct investment in crude oil.
• Regulatory compliance risks, including exchange accountability levels and federal position limits, which could inhibit investment strategy and cause tracking error.
• Interest rate risk, where changes in interest rates can cause the value of fixed income securities (Treasuries, cash equivalents) to fluctuate, potentially leading to losses if sold prematurely or lower reinvestment rates.
• Inflation risk, as increasing inflation can erode the present value of USO's cash and Treasury investments.
• Risk of loss from investing in government money market funds, as there is no guarantee they will maintain a stable $1.00 per share value.
• Geopolitical and natural disaster risks (e.g., pandemics, wars, tariffs, recessions) that can negatively impact crude oil prices and the value/liquidity of USO's investments.
• OTC contract risk, including less certainty in valuation, difficulty in obtaining independent values, and increased liquidity risk from highly customized transactions.
• Potential for the fund to become leveraged if it holds insufficient assets to meet current or future margin or collateral obligations, especially if asset values fall below zero.
• Tracking error due to factors such as executing trades at prices other than settlement, the impact of expenses, and the performance of Other Oil-Related Investments.
• Termination risk, where unforeseen circumstances could lead to the liquidation and potential loss of an investor's investment.

Future Outlook

USO maintains the flexibility to invest in Oil Futures Contracts beyond the Benchmark Oil Futures Contract and Other Oil-Related Investments, such as OTC swaps, to meet its investment objective, especially under varying market conditions, regulatory requirements, or liquidity needs. The fund may also increase its cash holdings to address potential margin requirements or market changes. Management anticipates that interest rates may stagnate, and if interest earned continues to exceed fees and expenses, USO could potentially outperform its benchmark. Geopolitical tensions, particularly in the Middle East, continue to pose risks to crude oil supply and prices, while global economic slowdowns due to trade policies could reduce demand.

Management Comments

• "USCF believes that it is not practical to manage the portfolio to achieve the foregoing investment objective when investing in Oil Futures Contracts and Other Oil-Related Investments." (referring to equaling spot price or daily percentage change over >1 day)
• "USCF believes that market arbitrage opportunities will cause daily changes in USOs share price on the NYSE Arca on a percentage basis to closely track daily changes in USOs per share NAV."
• "USCF anticipates that interest rates may continue to stagnate over the near future. It is anticipated that fees and expenses paid by USO may continue to be lower than interest earned by USO. As such, USCF anticipates that USO could possibly outperform its benchmark so long as interest earned is greater than the fees and expenses paid by USO."
• "USCF believes that crude oil has historically not demonstrated a strong correlation with equities or bonds over long periods of time. However, USCF also believes that in the future it is possible that crude oil could have long term correlation results that indicate prices of crude oil more closely track the movements of equities or bonds."
• "USCF endeavors to have the value of USOs Treasuries, cash and cash equivalents, whether held by USO or posted as margin or other collateral, at all times approximate the aggregate market value of its obligations under its Oil Futures Contracts and Other Oil-Related Investments."

Industry Context

The crude oil market experienced volatility during the six months ended June 30, 2025, with the Benchmark Oil Futures Contract decreasing by 9.22%. The market was characterized by mild contango, a condition where future prices are higher than near-month prices, which typically negatively impacts returns for long-only futures strategies. U.S. crude oil production averaged 13.4 million barrels per day (mbd) in Q2 2025, showing a year-to-date decline. OPEC+ production increased in the first half of 2025, with plans to unwind voluntary cuts, potentially adding downward pressure on prices. Geopolitical tensions, particularly in the Middle East, continue to be a significant risk factor for crude oil supply and price volatility, as demonstrated by the brief price spike following attacks on Iranian nuclear facilities. Broader economic risks, such as potential global slowdowns or recessions due to trade policies, could further reduce oil demand.

Comparison to Industry Standards

• USO's primary objective is to track the daily changes in the Benchmark Oil Futures Contract. For the 30-valuation days ended June 30, 2025, USO's average daily NAV change was 0.313% compared to the Benchmark's 0.301%, resulting in an average daily difference of 0.012% (1.2 basis points), which is within its +/10% tracking goal.
• For the six months ended June 30, 2025, USO's actual total return of (2.92)% outperformed the Benchmark Oil Futures Contract's estimated total return of (5.12)% by 2.20%.
• The correlation analysis provided shows crude oil's relationship with other asset classes: over 10 years, crude oil had a strong positive correlation with unleaded gasoline (0.747) and heating oil (0.774), a very low correlation with natural gas (0.016), and low positive correlations with large cap US equities (0.351) and global equities (0.386). It showed a negative correlation with US Government Bonds (-0.253).
• Over the most recent 1-year period, these correlations shifted: unleaded gasoline (0.726), heating oil (0.841), natural gas (0.076), large cap US equities (0.172), global equities (0.023), and US Government Bonds (-0.367). These figures provide context on crude oil's historical behavior relative to other markets but are not direct performance benchmarks for USO against specific comparable funds or projects.

Legal Proceedings

• **In re: United States Oil Fund, LP Securities Litigation**: A consolidated class action is pending in the U.S. District Court for the Southern District of New York (Civil Action No. 1:20-cv-04740). It alleges violations of the 1933 Act, Exchange Act, and Rule 10b-5 related to disclosures and actions during the extraordinary market conditions of Spring 2020. USCF, USO, and individual defendants intend to vigorously contest these claims.
• **Mehan Action**: A derivative action is pending in the Superior Court of California for the County of Alameda (Case No. RG20070732). It alleges breach of fiduciary duties and failure to act in good faith by USCF and individuals in connection with 2020 disclosures and market conditions. All proceedings are stayed pending the outcome of motions to dismiss in the In re: United States Oil Fund, LP Securities Litigation.
• **In re United States Oil Fund, LP Derivative Litigation**: Consolidated derivative actions are pending in the U.S. District Court for the Southern District of New York (Civil Action No. 1:20-cv-06974). These actions allege violations of the Exchange Act and common law claims related to USOs disclosures and defendants' actions during the 2020 market volatility. All proceedings are stayed pending the outcome of motions to dismiss in the In re: United States Oil Fund, LP Securities Litigation.
• **Optimum Strategies Action**: This action, filed in the U.S. District Court for the District of Connecticut (Civil Action No. 3:22-cv-00511), was dismissed with prejudice on March 15, 2023, for federal claims, and the state law claim was dismissed without prejudice. No appeal was filed.
• **Settlement of SEC and CFTC Investigations**: On November 8, 2021, USCF and USO settled investigations with the SEC and CFTC. The SEC Order directed USCF and USO to cease and desist from violations of Section 17(a)(3) of the 1933 Act, and the CFTC Order directed USCF to cease and desist from violations of Section 4o(1)(B) of the CEA and CFTC Regulation 4.41(a)(2). Civil monetary penalties totaling $2,500,000 were paid in aggregate by USCF to the SEC and CFTC.

Related Party Transactions

• USO pays USCF a monthly management fee equal to 0.45% per annum of average daily total net assets for investment management and administrative services.
• USCF pays the Marketing Agent (ALPS Distributors, Inc.) a fee of 0.025% of USO's total net assets, and also bears website construction and development costs.
• USCF pays BNY Mellon for custody, transfer agency, and fund administration and accounting services.
• USO and certain Related Public Funds pay NYMEX a licensing fee equal to 0.015% on all net assets for the use of settlement prices and service marks.

Stakeholder Impact

• **Shareholders**: Directly impacted by the fund's NAV and market price fluctuations, which are influenced by crude oil market dynamics, contango/backwardation, and the fund's tracking performance. Net losses reduce their capital, and ongoing legal proceedings introduce uncertainty.
• **Authorized Participants**: Benefit from arbitrage opportunities by creating and redeeming shares, paying a $1,000 transaction fee per order, which helps keep USO's market price aligned with its NAV.
• **USCF (General Partner)**: Receives management fees based on USO's net assets and is responsible for certain operational expenses, including marketing and administrative fees. USCF is also a defendant in ongoing legal proceedings.
• **Futures Commission Merchants (FCMs)**: Earn brokerage commissions from USO's trading activities and hold a significant portion of USO's assets as margin deposits and cash.
• **OTC Swap Counterparties**: Engage in bilateral swap transactions with USO, subject to credit risk and collateral requirements.
• **Regulatory Authorities (SEC, CFTC, NYMEX, NFA)**: Continue to oversee USO's compliance with regulations, with past settlements indicating a focus on disclosure and operational practices.

Next Steps

• USO will continue to invest in Oil Futures Contracts and Other Oil-Related Investments, potentially beyond the Benchmark Oil Futures Contract, based on market conditions, regulatory requirements, risk mitigation measures, or liquidity needs.
• The fund may need to hold significant portions of its portfolio in cash to address changes in market conditions, regulatory requirements, risk mitigation measures, or to satisfy potential margin requirements.
• OPEC+ plans to continue unwinding voluntary cuts and increasing quotas, which will influence global crude oil supply and prices.
• The fund will continue to monitor and respond to geopolitical conflicts and trade policy developments that could impact crude oil demand and supply.

Key Dates

Recommendation

USO demonstrated effective tracking by outperforming its benchmark by 2.20% during a period when crude oil prices declined by over 9%. While the fund experienced a significant net loss and a decrease in NAV, this was largely attributable to the unfavorable market conditions (declining crude oil prices and contango). The fund's ability to manage its portfolio to mitigate the negative impact of contango and track its benchmark effectively is a positive. However, the ongoing legal proceedings and the inherent volatility and contango in the crude oil futures market present continued risks. Investors seeking crude oil exposure should be aware of these factors and the potential for further price declines, but the fund's operational performance in tracking its objective is sound.

Keywords

Crude Oil, Oil Futures, Commodity Pool, ETF, USO, Energy Markets, SEC Filing, 10-Q, Financial Report, Investment Fund, WTI Crude, Futures Contracts, OTC Swaps, Contango, Backwardation, Risk Management, Regulatory Compliance, Financial Performance