10-Q: Brent Oil Fund Reports Q2 Loss Amid Market Volatility

United States Brent Oil Fund, LP (BNO) reported a net loss and decline in net asset value for the six months ended June 30, 2025, despite outperforming its benchmark.

Summary

• BNO reported a net loss of $1,299,405 for the six months ended June 30, 2025, a significant decline from a net income of $20,849,541 in the same period of 2024.
• Total assets decreased to $104,011,170 as of June 30, 2025, from $114,873,867 at December 31, 2024.
• Partners Capital declined to $103,793,477 at June 30, 2025, from $114,528,171 at December 31, 2024.
• Net asset value (NAV) per share decreased to $29.24 at June 30, 2025, from $30.14 at December 31, 2024.
• The fund experienced an unrealized loss of $10,517,750 on open commodity futures contracts as of June 30, 2025, compared to an unrealized gain of $2,601,040 at December 31, 2024.
• The total return for the six months ended June 30, 2025, was (2.99)%, a substantial drop from 17.45% for the same period in 2024.
• The Benchmark Futures Contract price decreased by approximately (10.58)% during the six months ended June 30, 2025, starting at $74.64 per barrel and ending at $66.74 per barrel.
• BNO's actual total return outperformed its benchmark by 1.42% for the six months ended June 30, 2025, with an actual NAV total return of (2.99)% compared to an expected (4.41)%.
• The fund added 2,250,000 partnership shares for $68,449,856 and redeemed 2,500,000 partnership shares for $77,885,145 during the six months ended June 30, 2025.

Sentiment

Score: 3

Explanation: The fund experienced a significant net loss and a decline in NAV and total return compared to the prior year, indicating poor financial performance. While tracking performance against its benchmark was positive, the underlying commodity's price decline and the fund's overall losses outweigh this. Geopolitical risks and inflation concerns add to the negative outlook.

Positives

• BNO's per share NAV tracking performance remained strong, with the average daily change within the plus or minus 10% range of the Benchmark Futures Contract for the 30-valuation days ended June 30, 2025 (0.255% vs. 0.242%).
• The fund's actual total return outperformed its benchmark by 1.42% for the six months ended June 30, 2025, and by 2.23% for the six months ended June 30, 2024.
• Total expenses decreased for both the three and six months ended June 30, 2025, primarily due to lower commissions and professional fees.
• Net cash provided by operating activities was positive at $11,797,055 for the six months ended June 30, 2025.
• The fund shifted from a net decrease in cash and cash equivalents of $(4,445,773) in 2024 to a net increase of $2,361,766 in 2025.

Negatives

• BNO reported a net loss of $1,299,405 for the six months ended June 30, 2025, a significant reversal from a net income of $20,849,541 in the prior year period.
• The fund's total return for the six months ended June 30, 2025, was (2.99)%, a substantial decline from 17.45% in the same period of 2024.
• Net asset value per share decreased to $29.24 at June 30, 2025, from $30.14 at December 31, 2024.
• The fund experienced a significant unrealized loss of $10,517,750 on open commodity futures contracts as of June 30, 2025, compared to a gain in the prior period.
• Dividend and interest income earned on short-term investments decreased for both the three and six months ended June 30, 2025, compared to the prior year periods.
• The Brent crude oil Benchmark Futures Contract price decreased by approximately (10.58)% during the six months ended June 30, 2025.

Risks

• Market volatility due to geopolitical conflicts (Russia-Ukraine war, Middle East conflicts), tariffs, trade barriers, and global economic slowdowns or recessions could negatively impact Brent crude oil prices and BNO's investments.
• Interest rate risk may prevent BNO from fully investing at prevailing rates or lead to losses if fixed income securities are sold before maturity in a rising interest rate environment.
• Inflation, currently above the Federal Reserve's 2% target, could erode the value of BNO's cash and Treasury investments.
• Investment in government money market funds carries a risk of loss, as there is no guarantee they will maintain a $1.00 per share NAV, and they are not FDIC insured.
• Contango, where the near month futures contract price is lower than the next month, can negatively impact total returns by causing the value of futures contracts to decline as they approach expiration.
• Tracking error can occur if BNO buys/sells futures contracts at prices other than the closing settlement price, if expenses outweigh interest income, or if Other Crude Oil-Related Investments fail to closely track the benchmark.
• Credit risk exists with counterparties (clearinghouses, FCMs) and could lead to losses in case of non-performance or insolvency, although most assets are held with the custodian.
• Illiquidity risk due to daily price limits on commodity exchanges could prevent BNO from promptly liquidating positions.
• Changes in U.S. federal income tax laws could have adverse tax consequences for BNO and its investors.
• BNO may terminate under unforeseen circumstances, including market conditions or regulatory requirements, which could lead to liquidation and potential loss of investment.

Future Outlook

Management anticipates that interest rates may continue to stagnate in the near future. It is expected that fees and expenses paid by BNO may be lower than interest earned, potentially leading to BNO outperforming its benchmark as long as interest earned exceeds fees and expenses. The long-expected reduction of OPEC+ quotas and voluntary cuts is underway, which could increase downward pressure on oil prices if demand also declines. Geopolitical tensions, particularly in the Middle East, remain a flashpoint for crude oil supply risk, potentially raising prices, while resolution could ease disruptions and lower prices. The impact of changes in U.S. federal income tax laws on BNO is uncertain, with potential for adverse tax consequences to the fund and investors.

Management Comments

• We believe that market arbitrage opportunities will cause daily changes in BNO's share price on the NYSE Arca on a percentage basis to closely track daily changes in BNO's per share NAV on a percentage basis.
• We further believe that daily changes in prices of the Benchmark Futures Contract have historically closely tracked the daily changes in spot prices of Brent crude oil.
• We believe that the net effect of these relationships will be that the daily changes in the price of BNO's shares on the NYSE Arca on a percentage basis will closely track the daily changes in the spot price of a barrel of Brent crude oil on a percentage basis, plus interest earned on BNO's collateral holdings, less BNO's expenses.
• It is anticipated that fees and expenses paid by BNO may be lower than interest earned by BNO. As such, we anticipate that BNO could possibly outperform its benchmark so long as interest earned is greater than the fees and expenses paid by BNO.

Industry Context

The Brent crude oil market experienced significant volatility during the six months ended June 30, 2025, with prices decreasing by approximately 10.58%. This period saw Brent crude oil futures in a state of backwardation. Global crude oil markets have been influenced by extraordinary events in recent years, including the COVID-19 pandemic, the Saudi-Russia oil price war, and the Russia-Ukraine war, leading to extreme volatility and price fluctuations. U.S. crude oil production averaged 13.4 million barrels per day in Q2 2025, while OPEC production rose but remained below preand post-pandemic highs. OPEC's commitment to maintaining market stability is noted, but the unwinding of voluntary cuts could increase downward pressure on prices. Geopolitical tensions, particularly in the Middle East, continue to pose a risk to crude oil supply and prices, as demonstrated by speculation around the Strait of Hormuz.

Comparison to Industry Standards

• BNO's investment objective is to track the daily percentage changes of the spot price of Brent crude oil, as measured by the Benchmark Futures Contract. For the 30-valuation days ended June 30, 2025, BNO's average daily NAV change of 0.255% was within the target range of 90% to 110% of the Benchmark Futures Contract's average daily change of 0.242%.
• Since its inception on June 2, 2010, to June 30, 2025, BNO's average daily NAV change of 0.029% has consistently tracked the Benchmark Futures Contract's average daily change of 0.028%, demonstrating long-term adherence to its tracking goal.
• BNO's actual total return of (2.99)% for the six months ended June 30, 2025, outperformed the expected total return based on the Benchmark Futures Contract of (4.41)%, indicating positive tracking efficiency relative to its benchmark.
• Historically, Brent crude oil has not shown a strong long-term correlation with large-cap U.S. equities (S&P 500 correlation of 0.400 over 10 years) or U.S. government bonds (BEUSG4 Index correlation of (0.299) over 10 years), suggesting its potential role in portfolio diversification.
• Brent crude oil shows strong positive correlation with other energy commodities like WTI crude oil (0.917), unleaded gasoline (0.794), and heating oil (0.784) over a 10-year period, aligning with expectations for a petroleum-based commodity fund.

Legal Proceedings

• The Optimum Strategies Action, filed against USO and USCF, was dismissed with prejudice on March 15, 2023.
• USCF and USO settled SEC and CFTC investigations on November 8, 2021, resulting in cease-and-desist orders and civil monetary penalties totaling $2,500,000.
• In re: United States Oil Fund, LP Securities Litigation, a consolidated putative class action, is ongoing, with defendants intending to vigorously contest claims.
• The Wang Class Action was voluntarily dismissed on August 4, 2020.
• The Mehan Action, a derivative action, is stayed pending disposition of motions to dismiss in In re: United States Oil Fund, LP Securities Litigation.
• In re United States Oil Fund, LP Derivative Litigation, consolidated derivative actions, is stayed pending disposition of motions to dismiss in In re: United States Oil Fund, LP Securities Litigation.

Related Party Transactions

• BNO pays USCF a monthly management fee equal to 0.75% per annum of average daily total net assets.
• USCF pays the fees of ALPS Distributors, Inc. (Marketing Agent) and The Bank of New York Mellon (custodian, administrator, transfer agent).
• BNO shares fees and expenses of independent directors with Related Public Funds on a pro rata basis.
• BNO pays fees and expenses associated with its tax accounting and reporting requirements.

Stakeholder Impact

• Shareholders experienced a decrease in Net Asset Value (NAV) per share and a negative total return for the six months ended June 30, 2025, indicating a decline in investment value.
• Authorized Participants continue to engage in creation and redemption activities, with significant redemptions occurring during the period, reflecting market demand and liquidity management.
• The ongoing legal proceedings, while not directly against BNO, involve its general partner (USCF) and related funds (USO), which could indirectly impact investor confidence or operational focus.
• The fund's ability to generate income from collateral holdings is influenced by prevailing interest rates, which impacts overall profitability and the net expense ratio.
• The fund's operational expenses, including management fees and brokerage commissions, directly impact the net returns available to shareholders.

Next Steps

• USCF will continue to manage BNO's portfolio to track the daily percentage changes in the Benchmark Futures Contract.
• BNO 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 (In re: United States Oil Fund, LP Securities Litigation and In re United States Oil Fund, LP Derivative Litigation) intend to vigorously contest claims.

Key Dates

Recommendation

While the fund experienced a net loss and a decline in NAV and total return for the period, it successfully outperformed its benchmark, indicating effective management of its tracking objective. The decrease in expenses and positive cash flow from operations are also favorable. However, the inherent volatility of the Brent crude oil market, coupled with significant geopolitical risks and the potential impact of contango, presents ongoing challenges. The fund's performance is heavily tied to the volatile commodity market, making it a speculative investment. Given the current market conditions and the fund's ability to track its benchmark, a 'hold' recommendation is appropriate for investors already exposed to the commodity, while new investors should exercise caution due to the high risk profile.

Keywords

Brent crude oil, commodity fund, futures contracts, SEC filing, 10-Q, NAV, market risk, contango, backwardation, investment performance, financial results, oil prices, USCF, NYSE Arca