10-Q: USL Reports Q2 Loss Amid Oil Market Volatility

United States 12 Month Oil Fund, LP reported a significant net loss for Q2 2025, with declining assets and NAV per share, despite outperforming its crude oil benchmark.

Summary

• United States 12 Month Oil Fund, LP (USL) reported a net loss of $3,983,265 for the three months ended June 30, 2025, a significant decline from a net income of $881,001 in the same period of 2024.
• For the six months ended June 30, 2025, USL recorded a net loss of $3,639,200, compared to a net income of $9,154,479 for the prior year period.
• Net asset value (NAV) per share decreased to $35.19 as of June 30, 2025, from $38.01 at December 31, 2024.
• Total assets declined to $42,371,422 at June 30, 2025, from $49,635,690 at December 31, 2024.
• The total return for the six months ended June 30, 2025, was a negative 7.42%, a sharp contrast to the 15.07% positive return in the same period of 2024.
• The average price of the Benchmark Oil Futures Contracts decreased by 10.95% during the six months ended June 30, 2025, from $69.70 to $62.07 per barrel.
• USL's NAV per share tracked its benchmark effectively, with an average daily difference of 0.014% for the 30-valuation days ended June 30, 2025, and 0.001% since inception.
• USL's actual total return outperformed its benchmark by 1.43% for the six months ended June 30, 2025, and by 2.27% for the six months ended June 30, 2024.

Sentiment

Score: 4

Explanation: The fund experienced significant financial losses and a decline in assets and NAV per share, driven by a downturn in crude oil prices. While the fund demonstrated excellent tracking performance relative to its benchmark and managed to reduce expenses, the absolute negative returns and ongoing legal challenges weigh heavily on the sentiment. The market environment for crude oil remains volatile with geopolitical and economic uncertainties.

Positives

• USL's per share NAV effectively tracked its benchmark, with an average daily difference of 0.014% for the 30-valuation days ended June 30, 2025, and 0.001% since inception (December 6, 2007).
• USL's actual total return outperformed its benchmark by 1.43% for the six months ended June 30, 2025, and by 2.27% for the six months ended June 30, 2024, primarily due to interest income exceeding expenses.
• Total expenses decreased for both the three and six months ended June 30, 2025, compared to the prior year periods, driven by lower professional fees and brokerage commissions.
• Total liabilities decreased to $142,902 at June 30, 2025, from $219,506 at December 31, 2024.
• The lawsuit filed by Optimum Strategies Fund I, LP against USO and USCF was dismissed with prejudice on March 15, 2023, with no notice of appeal filed.
• The Wang Class Action was voluntarily dismissed on August 4, 2020.

Negatives

• USL reported a net loss of $3,983,265 for the three months ended June 30, 2025, a significant deterioration from a net income of $881,001 in the prior year period.
• For the six months ended June 30, 2025, USL incurred a net loss of $3,639,200, compared to a net income of $9,154,479 in the same period of 2024.
• Total assets decreased by approximately 14.6% to $42,371,422 at June 30, 2025, from $49,635,690 at December 31, 2024.
• Partners Capital declined to $42,228,520 at June 30, 2025, from $49,416,184 at December 31, 2024.
• Net asset value per share decreased to $35.19 at June 30, 2025, from $38.01 at December 31, 2024.
• The average price of the Benchmark Oil Futures Contracts decreased by 10.95% during the six months ended June 30, 2025.
• USL experienced a shift from realized gains to realized losses on closed commodity futures contracts for both the three and six months ended June 30, 2025.
• Unrealized losses on open commodity futures contracts increased significantly to $(2,429,195) at June 30, 2025, from $(478,755) at December 31, 2024.
• Interest income decreased significantly for both the three and six months ended June 30, 2025, compared to the prior year periods.
• The crude oil futures market was in a state of contango during the six months ended June 30, 2025, which tends to negatively impact total returns for futures-based investments.
• Ongoing legal proceedings (Lucas Class Action, Mehan Action, In re United States Oil Fund, LP Derivative Litigation) remain a concern, with defendants vigorously contesting claims.

Risks

• Market risk arising from changes in the market value of commodity futures contracts and other derivatives.
• Credit risk due to the potential failure of a counterparty (including clearinghouses or FCMs) to perform its obligations.
• Imperfect correlation between movements in the price of futures contracts and the market value of the underlying securities.
• Possibility of an illiquid market for a futures contract, potentially preventing prompt liquidation of positions.
• Exposure to loss in excess of the amount of variation margin on futures contracts.
• Unlimited market risk if USL enters into a contractual commitment to sell oil (short position).
• Volatility in crude oil prices and investment values due to natural disasters, public health disruptions (e.g., COVID-19 pandemic), and international armed conflicts (e.g., Russia-Ukraine war, Middle East conflicts).
• Interest rate risk, where fixed income securities and other investments may fluctuate in value due to changes in interest rates, potentially leading to losses if investments are sold early.
• Inflation risk, where increasing inflation may erode the present value of USL's cash and Treasury investments.
• Risk of loss from investing in government money market funds, as they are not guaranteed and their share price can fall below $1.00.
• Risk of complete loss of assets posted with an FCM or custodian in the event of their insolvency.
• Counterparty risk during Exchange for Related Position (EFRP) transactions, particularly during the interim period between OTC component execution and futures contract exchange.
• Increased liquidity risk and potential suspension of redemptions from highly customized swap transactions.
• Substantial gains or losses from highly leveraged transactions due to small changes in underlying market factors.
• Difficulty in obtaining an independent value for outstanding OTC derivatives transactions.
• Impact of daily price limits on commodity exchanges, which could prevent USL from promptly liquidating positions.
• Uncertain impact of changes in U.S. federal income tax laws, which could result in adverse tax consequences for USL and its investors.
• The potential for contango to persist, potentially at extreme levels, negatively impacting returns.

Future Outlook

USCF anticipates that interest rates may continue to stagnate over the near future, potentially allowing USL to outperform its benchmark if interest earned exceeds fees and expenses. Contango in the crude oil futures market may persist, possibly at extreme levels, due to ongoing uncertainty from the COVID-19 crisis. Geopolitical conflicts, such as Middle East tensions, remain a flash point for crude oil supply risk, which could raise prices, while resolutions could lower them. The long-expected reduction of OPEC+ quotas and voluntary cuts is underway, potentially increasing downward pressure on prices. Additionally, the overall impact of the Trump administration's tariffs has materially increased the risk of a global economic slowdown or recession, which would reduce demand for crude oil.

Management Comments

• "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."

Industry Context

The crude oil market experienced significant volatility in the early 2020s due to demand and supply shocks (COVID-19 pandemic, Saudi-Russia price war), leading to unprecedented events like negative WTI prices and extreme contango. While prices recovered from all-time lows, they have traded mostly between $65 to $80 since early 2023, with several prominent price reversals. U.S. crude oil production increased significantly over the last five years but is down year-to-date, averaging 13.4 million barrels per day in Q2 2025. OPEC+ production declined from late 2022 to Q3 2024 to support prices but rose in the first half of 2025, with plans to unwind voluntary cuts, potentially increasing downward pressure on prices. Geopolitical tensions, such as the Israel-United States attack on Iran's nuclear facilities and the ongoing Russia-Ukraine war, continue to pose risks to crude oil supply and price volatility. Trade policies, including the Trump administration's tariffs, introduce global economic slowdown risks that could reduce crude oil demand.

Comparison to Industry Standards

• USL's performance is directly compared to its Benchmark Oil Futures Contracts, which is an average of 12 consecutive month crude oil futures contracts.
• The fund's ability to track its benchmark is assessed, showing an average daily difference of 0.014% for the 30-valuation days ended June 30, 2025, indicating strong tracking within its stated goal of +/10%.
• The filing discusses the impact of market structures like contango and backwardation on total returns, noting that USL's 12-month contract strategy is designed to be less impacted by these effects compared to a single near-month contract strategy.
• Correlation matrices are provided comparing crude oil price movements to other energy commodities (natural gas, diesel-heating oil, unleaded gasoline) and major non-commodity investment 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

• In re: United States Oil Fund, LP Securities Litigation (Lucas Class Action): A consolidated putative class action filed on November 30, 2020, asserting claims under the 1933 Act, Exchange Act, and Rule 10b-5, challenging statements in registration statements and public statements concerning extraordinary market conditions and oil demand decline. The complaint seeks compensatory damages, costs, and attorneys' fees, and is pending in the U.S. District Court for the Southern District of New York. Proceedings are stayed pending disposition of motions to dismiss.
• Mehan Action: A derivative action filed on August 10, 2020, alleging breach of fiduciary duties and failure to act in good faith by defendants in connection with a March 19, 2020 registration statement and disclosures regarding market conditions. The action seeks compensatory damages, restitution, and equitable relief on behalf of USO, and is stayed pending disposition of motions to dismiss in the Lucas Class Action.
• In re United States Oil Fund, LP Derivative Litigation (Cantrell and AML Actions): Consolidated derivative actions filed on August 27, 2020, alleging violations of Sections 10(b), 20(a), and 21D of the Exchange Act, Rule 10b-5, and common law claims, stemming from USO's disclosures and defendants' actions during the extraordinary market conditions of 2020. The complaints seek compensatory damages, restitution, and equitable relief on behalf of USO, and are stayed pending disposition of motions to dismiss in the Lucas Class Action.

Related Party Transactions

• USL pays its General Partner, United States Commodity Funds LLC (USCF), a monthly management fee equal to 0.60% per annum of average daily total net assets for investment management and administrative services.
• USCF pays the fees of ALPS Distributors, Inc. (Marketing Agent), which are 0.025% of USL's total net assets, and the fees of The Bank of New York Mellon (BNY Mellon) for custodial, administrative, accounting, and transfer agency services.
• USL pays a licensing fee equal to 0.015% on all net assets to the NYMEX for the non-exclusive license to use certain settlement prices and service marks.
• USL shares the fees and expenses of the independent directors who also serve as audit committee members of USL and the Related Public Funds on a pro rata basis based on relative assets.

Stakeholder Impact

• Shareholders: Experienced a negative total return of 7.42% for the six months ended June 30, 2025, and a decline in net asset value per share, indicating a loss on their investment during the period. They are exposed to ongoing market volatility in crude oil prices and the effects of contango.
• General Partner (USCF): Continues to receive management fees based on average daily total net assets, but is also responsible for paying certain operational expenses like marketing agent and BNY Mellon fees. USCF is actively involved in defending multiple ongoing legal proceedings related to USO, which could have reputational and financial implications.
• Authorized Participants: Continue to facilitate the creation and redemption of shares, earning transaction fees. Their ability to arbitrage market price differences from NAV helps USL track its benchmark.
• Futures Commission Merchants (FCMs): Continue to earn brokerage commissions from USL's trading activities, though commissions decreased due to a lower number of contracts held and traded. They bear credit risk related to USL's positions.

Next Steps

• USCF will continue to manage USL's portfolio to track the daily changes in the average of the prices of the Benchmark Oil Futures Contracts.
• USL will continue to publish monthly account statements for shareholders, furnished to the SEC on Form 8-K and posted on its website.
• Defendants in ongoing legal proceedings (Lucas Class Action, Mehan Action, In re United States Oil Fund, LP Derivative Litigation) intend to vigorously contest claims.

Key Dates

Recommendation

The fund has experienced significant financial losses, with net income turning negative and a substantial decline in total assets and NAV per share. While the fund effectively tracks its benchmark, the benchmark itself has been in decline, and the persistent contango in the crude oil futures market creates a structural headwind that erodes returns over time. Ongoing legal proceedings add an element of uncertainty and potential future costs. Given the negative absolute performance, the inherent challenges of a contango market, and the volatile geopolitical landscape impacting crude oil, a seasoned investor would likely consider selling to mitigate further losses and reallocate capital to more favorable opportunities.

Keywords

Oil Fund, Crude Oil Futures, Commodity Pool, SEC Filing, 10-Q, Energy Futures, Investment Fund, Financial Performance, Market Risk, Contango, Backwardation, USL, USCF, NYSE Arca