10-Q: United States 12 Month Oil Fund (USL) Reports Mixed Q3 Results Amidst Volatile Oil Market

The United States 12 Month Oil Fund (USL) reports its financial results for the quarter ended September 30, 2024, amidst a volatile crude oil market, with a slight increase in NAV per share but a decrease in the average price of Benchmark Oil Futures Contracts.

Summary

• United States 12 Month Oil Fund, LP (USL) has released its financial results for the quarter ended September 30, 2024.
• The fund's investment objective is to reflect the daily changes in percentage terms of its shares per share net asset value (NAV) to reflect the daily changes, in percentage terms, of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma.
• As of September 30, 2024, USL had 1,500,000 shares outstanding.
• The average price of the Benchmark Oil Futures Contracts decreased (5.95)% from the end of 2023 through September 30, 2024 finishing the quarter at $67.14.
• USLs per share NAV began the period at $35.23 and ended the period at $35.91 on September 30, 2024, an increase of approximately 1.93% over the period.
• For the 30-valuation days ended September 30, 2024, the average daily change in the Benchmark Oil Futures Contracts was (0.243)%, while the average daily change in the per share NAV of USL over the same time period was (0.228)%.
• The average daily difference was 0.015%, meaning that over this time period USLs NAV performed within the plus or minus 10% range established as its benchmark tracking goal.
• For the nine months ended September 30, 2024, the actual total return of USL as measured by changes in its per share NAV was 1.93%.
• If USLs daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Oil Futures Contracts, USL would have had an estimated per share NAV of $34.87 as of September 30, 2024, for a total return over the relevant time period of (1.02)%.
• The difference between the actual per share NAV total return of USL of 1.93% and the expected total return based on the Benchmark Oil Futures Contracts of (1.02)% was a difference over the time period of 2.95%, which is to say that USLs actual total return outperformed its benchmark by that percentage.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the NAV increased slightly, the decrease in the average price of Benchmark Oil Futures Contracts and the discussion of various risks create a balanced outlook.

Positives

• USL's NAV per share increased by approximately 1.93% during the nine months ended September 30, 2024, closing at $35.91.
• USL's NAV performance remained within the target range of plus or minus 10% of the average daily change in the Benchmark Oil Futures Contracts.
• USL outperformed its benchmark by 2.95% during the nine months ended September 30, 2024.
• Average interest rates earned on short-term investments held by USL, including cash, cash equivalents and Treasuries, were higher during the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023.

Negatives

• The average price of the Benchmark Oil Futures Contracts decreased by (5.95)% during the nine months ended September 30, 2024, ending at $67.14.

Risks

• Geopolitical risk, including as a result of the Russia-Ukraine war and Middle East conflict, has the potential to create further supply disruptions and sanctions, which could lead to further volatility.
• In a rising rate environment, USL may not be able to fully invest at prevailing rates until any current investments in Treasury Bills mature in order to avoid selling those investments at a loss.
• USL may potentially lose money by investing in government money market funds.
• USL is exposed to commodity price risk through its holdings of Oil Futures Contracts together with any other derivatives in which it may invest.
• USL may purchase OTC contracts, such as forward contracts or swap or spot contracts, which expose USL to counterparty risk.

Future Outlook

The report discusses the potential impact of various factors, including geopolitical events, supply and demand dynamics, and OPEC's actions, on crude oil prices and USL's performance.

Management Comments

• USCF believes that market arbitrage opportunities will cause daily changes in USLs share price on the NYSE Arca on a percentage basis to closely track daily changes in USLs per share NAV on a percentage basis.
• USCF further believes that the daily changes in prices of the Benchmark Oil Futures Contracts have historically tracked the daily changes in spot prices of light, sweet crude oil.
• USCF believes that the net effect of these relationships will be that the daily changes in the price of USLs shares on the NYSE Arca on a percentage basis will closely track the daily changes in the spot price of a barrel of light, sweet crude oil on a percentage basis, plus interest earned on USLs collateral holdings, less USLs expenses.

Industry Context

The report provides context on the crude oil market, including price movements, supply and demand dynamics, and the impact of geopolitical events such as the Russia-Ukraine war and Middle East conflict.

Comparison to Industry Standards

• The report does not provide specific comparisons to other similar funds or industry benchmarks.
• However, it does discuss the correlation between crude oil prices and other energy commodities, as well as major non-commodity asset classes.

Legal Proceedings

• USL may be involved in legal proceedings arising primarily out of the ordinary course of business.
• USCF, as the general partner of USL and the Related Public Funds may, from time to time, be involved in litigation arising out of its operations in the ordinary course of business.
• Optimum Strategies Fund I, LP, a purported investor in call option contracts on USO filed an action against USO and USCF, which was dismissed on March 15, 2023.
• USCF and USO announced a resolution with each of the SEC and the CFTC relating to matters set forth in certain Wells Notices issued by the staffs of each of the SEC and CFTC on November 8, 2021.
• In re: United States Oil Fund, LP Securities Litigation is a putative class action filed by purported shareholder Robert Lucas against USCF, USO, John P. Love, and Stuart P. Crumbaugh.
• Wang Class Action was a putative class action complaint filed by purported shareholder Momo Wang against defendants USO, USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, Malcolm R. Fobes, III, ABN Amro, BNP Paribas Securities Corp., Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Goldman Sachs & Company, JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas Securities LLC, UBS Securities LLC, and Virtu Financial BD LLC, in the U.S. District Court for the Northern District of California as Civil Action No. 3:20-cv-4596 (the Wang Class Action).
• Mehan Action is a derivative action on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes, III.
• In re United States Oil Fund, LP Derivative Litigation is a derivative action on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Andrew F Ngim, Gordon L. Ellis, Malcolm R. Fobes, III, Nicholas D. Gerber, Robert L. Nguyen, and Peter M. Robinson in the U.S. District Court for the Southern District of New York at Civil Action No. 1:20-cv-06974 (the Cantrell Action) and Civil Action No. 1:20-cv-06981 (the AML Action), respectively.

Related Party Transactions

• USCF is paid a management fee calculated daily and paid monthly as a fixed percentage of USLs NAV, currently 0.60% of NAV on its average daily total net assets.
• USCF pays the fees of the Marketing Agent as well as BNY Mellons fees for performing administrative, custodial, and transfer agency services.
• USCF and USL have also entered into a licensing agreement with the NYMEX pursuant to which USL and the Related Public Funds, other than BNO, USCI and CPER, pay a licensing fee to the NYMEX.
• USL also pays a portion of the fees and expenses of the independent directors of USCF.

Stakeholder Impact

• The report provides information relevant to shareholders regarding the fund's performance, investment strategy, and risk factors.
• The report also discusses the impact of market conditions and regulatory requirements on the fund's operations.

Key Dates

Keywords

oil fund, crude oil, futures contracts, NAV, USL, Benchmark Oil Futures Contracts, financial results, commodity pool