10-Q: USL Q3 2025: Oil Fund Reports Net Loss Amid Market Volatility

United States 12 Month Oil Fund, LP reports a net loss for the three and nine months ended September 30, 2025, with a decrease in net asset value per share, despite outperforming its benchmark.

Summary

• The fund reported a net loss of $(3,265,475) for the nine months ended September 30, 2025, a significant decline from net income of $2,115,288 for the same period in 2024.
• Total income (loss) for the nine months ended September 30, 2025, was a loss of $(2,928,068), compared to income of $2,585,496 in the prior year period.
• Net asset value per share decreased to $35.50 at September 30, 2025, from $38.01 at December 31, 2024.
• Total assets decreased to $40,990,293 at September 30, 2025, from $49,635,690 at December 31, 2024.
• Total Partners Capital decreased to $40,825,678 at September 30, 2025, from $49,416,184 at December 31, 2024.
• Limited Partner shares outstanding decreased to 1,150,000 at September 30, 2025, from 1,300,000 at December 31, 2024.
• The actual total return of the fund (measured by changes in per share NAV) for the nine months ended September 30, 2025, was (6.60)%, which outperformed the Benchmark Oil Futures Contracts' estimated total return of (8.76)% by 2.16%.
• The average daily total net assets for the nine months ended September 30, 2025, were $44,073,887, down from $62,536,322 for the same period in 2024.
• The average price of the Benchmark Oil Futures Contracts decreased approximately (11.89)% over the nine months ended September 30, 2025, starting at $69.70 per barrel and ending at $61.41 per barrel.
• The crude oil futures market experienced states of mild backwardation and contango during the nine months ended September 30, 2025, with contango persisting.

Sentiment

Score: 3

Explanation: The fund experienced significant net losses and a decrease in NAV and total assets, reflecting a challenging period in the crude oil market. While it technically outperformed its benchmark, the benchmark itself was negative. The ongoing contango and geopolitical risks present headwinds.

Positives

• The fund's actual total return of (6.60)% for the nine months ended September 30, 2025, outperformed its benchmark's estimated total return of (8.76)% by 2.16%.
• The average daily change in per share NAV for the 30-valuation days ended September 30, 2025, was 0.011%, which was within the fund's +/10% tracking goal relative to the Benchmark Oil Futures Contracts' average daily change of (0.001)%.
• Since the commencement of the offering on December 6, 2007, to September 30, 2025, the fund's NAV has performed within its +/10% benchmark tracking goal, with an average daily difference of 0.001%.
• Management anticipates that fees and expenses paid by the fund may continue to be lower than interest earned, which could lead to continued outperformance of its benchmark.

Negatives

• The fund reported a net loss of $(3,265,475) for the nine months ended September 30, 2025, a significant reversal from net income of $2,115,288 in the prior year period.
• Total income (loss) for the nine months ended September 30, 2025, was a loss of $(2,928,068), compared to income of $2,585,496 in the prior year period.
• Net asset value per share decreased from $38.01 at December 31, 2024, to $35.50 at September 30, 2025.
• Total Partners Capital decreased by $8,590,506 from December 31, 2024, to September 30, 2025.
• Average daily total net assets decreased to $44,073,887 for the nine months ended September 30, 2025, from $62,536,322 for the same period in 2024.
• Dividend and interest income earned on Treasuries, cash, and cash equivalents decreased to $1,351,553 for the nine months ended September 30, 2025, from $2,332,288 for the same period in 2024.
• The annualized yield based on average daily total net assets decreased to 4.10% for the nine months ended September 30, 2025, from 4.98% for the same period in 2024.
• The average price of Benchmark Oil Futures Contracts decreased approximately (11.89)% over the nine months ended September 30, 2025.
• The crude oil futures market was in a state of contango during the nine months ended September 30, 2025, which tends to negatively impact total returns for a portfolio holding contracts with a range of expiration months compared to a portfolio holding only a single near-month contract.

Risks

• **Market Risk**: Exposure to changes in the market value of commodity futures contracts and other derivatives, with potential for loss in excess of the amount of variation margin. Unlimited liability on contracts sold short.
• **Credit Risk**: Risk of counterparty failure to perform obligations, particularly with OTC contracts. The fund also bears the risk of financial failure by its clearing broker or custodian, which could result in substantial loss of assets.
• **Contango and Backwardation**: Natural market forces that impact the total return on an investment relative to a hypothetical direct investment in crude oil. Contango tends to cause underperformance, while backwardation tends to cause outperformance.
• **Illiquidity**: Market conditions, such as daily price limits on commodity exchanges, could prevent the fund from promptly liquidating its positions in Oil Futures Contracts.
• **Geopolitical Conflict**: Natural disasters, public health disruptions (e.g., COVID-19 pandemic), and international armed conflicts (e.g., Russia-Ukraine war, Middle East conflicts) can negatively impact crude oil prices, value, pricing, and liquidity of investments, potentially leading to substantial loss.
• **Interest Rate Risk**: Fixed income securities and other investments in the portfolio will fluctuate in value due to changes in interest rates. In a rising interest rate environment, the fund may not be able to fully invest at prevailing rates to avoid selling current investments at a loss.
• **Inflation Risk**: Inflation erodes the value of cash or bonds; in a high inflation environment, the value of the fund's cash and Treasury investments may decline.
• **Money Market Fund Risk**: Investments in government money market funds are not guaranteed to preserve value at $1.00 per share, and the fund may lose money. These investments are not insured or guaranteed by the FDIC or any other government agency.
• **Regulatory Risk**: Evolving commodity interest trading regulations (e.g., accountability levels, position limits, mandatory trading/clearing of swaps, margin rules) could inhibit the fund's ability to invest in relevant Benchmark Oil Futures Contracts or increase tracking error.
• **Tax Law Changes**: The impact of changes in U.S. federal income tax laws on the fund is uncertain and could have a negative effect on the fund or its investors.
• **Termination Risk**: The fund may terminate under unforeseen circumstances (e.g., inability to meet investment objective, unreasonable operating expenses, General Partner's incompetence/bankruptcy), leading to liquidation and potential loss for investors.

Future Outlook

Management anticipates that interest rates may continue to stagnate over the near future, and that fees and expenses paid by the fund may continue to be lower than interest earned, potentially allowing the fund to outperform its benchmark. However, contango may persist for the foreseeable future, potentially at extreme levels, due to ongoing uncertainty in the wake of the COVID-19 crisis. Geopolitical conflicts, such as those in the Middle East and the impact of tariffs, add complexity to the supply-demand equation and could cause crude oil prices to be volatile, with potential for both increases due to supply risk or decreases due to resolutions.

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."
• "USCF believes that it is not practical to manage the portfolio to achieve such an investment goal when investing in Oil Futures Contracts and Other Oil-Related Investments." (referring to NAV equaling the spot price of crude oil)
• "USCF anticipates that interest rates may continue to stagnate over the near future. It is anticipated that fees and expenses paid by USL may continue to be lower than interest earned by USL. As such, USCF anticipates that USL could possibly outperform its benchmark so long as interest earned is greater than fees and expenses paid by USL."
• "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."

Industry Context

The crude oil market experienced extraordinary volatility in the early 2020s due to simultaneous demand and supply shocks from the COVID-19 pandemic and the Saudi-Russia price war, leading to negative WTI prices and 'super contango.' While conditions have moderated, the market continues to experience contango, which can negatively impact returns for diversified futures portfolios. U.S. crude oil production has significantly increased over the last five years, while OPEC output, after declining through Q3 2024 to support prices, has risen in 2025, though remaining below pre-pandemic highs. Geopolitical tensions, including potential conflicts in the Middle East and the impact of tariffs from the Trump administration, add significant complexity and risk to crude oil supply and demand dynamics, contributing to price volatility.

Comparison to Industry Standards

• The fund's investment objective is to track the daily percentage changes of its per share NAV to the daily changes in the average of the prices of 12 specified short-term crude oil futures contracts (Benchmark Oil Futures Contracts), plus interest, less expenses.
• The fund aims for its average daily percentage change in NAV over any rolling 30-valuation day period to be within a range of 90% to 110% of the average daily percentage change in the Benchmark Oil Futures Contracts.
• For the 30-valuation days ended September 30, 2025, the fund's average daily change in per share NAV (0.011%) was within the +/10% range of the benchmark's average daily change ((0.001)%), indicating successful tracking.
• For the nine months ended September 30, 2025, the fund's actual total return of (6.60)% outperformed the estimated total return of the Benchmark Oil Futures Contracts of (8.76)% by 2.16%.
• The filing provides correlation matrices comparing crude oil to other energy commodities (natural gas, diesel-heating oil, unleaded gasoline) and major non-commodity asset classes (large cap U.S. equities, U.S. government bonds, global equities) over 1-year and 10-year periods, showing varying degrees of correlation.

Legal Proceedings

• **Optimum Strategies Action**: A lawsuit filed April 6, 2022, against USO and USCF, alleging violations of the Securities Exchange Act and Connecticut Uniform Securities Act. The federal claims were dismissed with prejudice on March 15, 2023, and the state law claim was dismissed without prejudice. No notice of appeal was filed.
• **Settlement of SEC and CFTC Investigations**: On November 8, 2021, USCF and USO resolved investigations by the SEC and CFTC regarding alleged violations in April-May 2020. This resulted in cease-and-desist orders and civil monetary penalties totaling $2,500,000, paid by USCF.
• **In re: United States Oil Fund, LP Securities Litigation**: A consolidated putative class action filed June 19, 2020, against USCF, USO, and others, alleging violations of the 1933 and 1934 Acts related to disclosures during the 2020 oil market crisis. The court granted the defendants' motion to dismiss the complaint in its entirety without prejudice on September 29, 2025, granting the plaintiff leave to amend by November 26, 2025.
• **Wang Class Action**: A putative class action filed July 10, 2020, against USO, USCF, and others, alleging federal securities claims under the 1933 Act. This action was voluntarily dismissed on August 4, 2020.
• **Mehan Action**: A derivative action filed August 10, 2020, on behalf of USO, against USCF and others, alleging breach of fiduciary duties. All proceedings are stayed pending final disposition of the motion(s) to dismiss in In re: United States Oil Fund, LP Securities Litigation.
• **In re United States Oil Fund, LP Derivative Litigation**: Consolidated derivative actions filed August 27, 2020, on behalf of USO, against USCF, USO, and others, alleging violations of the Exchange Act and common law claims. All proceedings are stayed pending final disposition of the motion(s) to dismiss in In re: United States Oil Fund, LP Securities Litigation.

Related Party Transactions

• USL is contractually obligated to pay USCF a management fee, paid monthly, equal to 0.60% per annum of average daily total net assets.
• USCF pays the fees of the Marketing Agent (ALPS Distributors, Inc.), which is 0.025% of USL's total net assets, and the fees of The Bank of New York Mellon for custodial, administrative, accounting, and transfer agency services.
• USL shares the fees and expenses of its independent directors, who also serve as audit committee members, on a pro rata basis with the Related Public Funds.
• USL pays a licensing fee to the NYMEX, equal to 0.015% on all net assets, under an agreement with USCF.

Stakeholder Impact

• **Shareholders**: Experienced a decrease in Net Asset Value per share and negative total returns for the nine-month period. They are exposed to ongoing market volatility, the effects of contango, geopolitical risks, and the uncertainties of pending legal proceedings.
• **Limited Partners**: Total Partners Capital decreased significantly during the period.
• **Authorized Participants**: Continue to facilitate the creation and redemption of shares, paying transaction fees to the fund.
• **Management (USCF)**: Continues to manage the fund's investments and operations, receiving management fees, and is actively involved in contesting ongoing legal claims.

Next Steps

• The plaintiff in the In re: United States Oil Fund, LP Securities Litigation has leave to move to amend the complaint by November 26, 2025.
• USCF, USO, and the other defendants intend to vigorously contest any claims in the ongoing legal proceedings.
• The fund will continue to publish monthly account statements for its shareholders, furnished to the SEC on Form 8-K and posted on its website.

Key Dates

Recommendation

While the fund experienced a net loss and declining NAV, it demonstrated effective tracking and even outperformed its negative benchmark for the period. The fund's performance is inherently tied to the volatile crude oil market, which is currently influenced by contango and geopolitical tensions. For investors already exposed to the commodity, a 'hold' recommendation acknowledges the inherent risks and the fund's ability to track its benchmark, suggesting that the current market conditions are the primary driver of performance rather than internal operational issues. New investors should carefully consider the high volatility and specific risks of crude oil exposure.

Keywords

Crude Oil Futures, Commodity Pool, WTI Crude Oil, Energy ETF, SEC Filing, 10-Q, Financial Report, Investment Fund, Futures Contracts, Oil Market, Contango, Backwardation, USCF, NYSE Arca, Financial Performance, Risk Management, Commodity Trading, Quarterly Results