10-Q: United States Brent Oil Fund (BNO) Reports Q1 2024 Results: NAV Increases Amidst Market Volatility

United States Brent Oil Fund's NAV per share increased to $31.96 in Q1 2024, reflecting gains in Brent crude oil futures despite market fluctuations.

Summary

• United States Brent Oil Fund, LP (BNO) reported its financial results for the quarter ended March 31, 2024.
• The fund's investment objective is to mirror the daily changes in the spot price of Brent crude oil.
• BNO primarily invests in futures contracts for crude oil and other petroleum-based fuels.
• The NAV per share increased from $27.39 at the end of 2023 to $31.96 as of March 31, 2024.
• Net income for the quarter was $20,216,876, or $4.57 per limited partner share, compared to a net loss of $14,033,172, or $(1.63) per share, for the same period in 2023.
• The fund had 4,200,000 shares outstanding as of March 31, 2024.
• The average daily change in the Benchmark Futures Contract was 0.280%, while the average daily change in the per share NAV of BNO was 0.296% for the 30-valuation days ended March 31, 2024.
• The fund's management fee is 0.75% per annum of average daily total net assets.
• Brent crude oil futures prices were volatile during the quarter, with the Benchmark Futures Contract starting at $77.04 per barrel and ending at $87.00 per barrel.
• The fund is exposed to risks related to commodity prices, market volatility, and counterparty credit risk.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the increase in NAV and the turnaround from a loss to a profit. However, the report also highlights various risks and uncertainties, preventing a higher score.

Positives

• The fund achieved a net income of $20.2 million, a significant turnaround from the net loss in the same period last year.
• BNO's NAV per share increased by 16.68% during the quarter.
• The fund successfully tracked its benchmark, with the average daily change in NAV closely mirroring the benchmark futures contract.
• Average interest rates earned on short-term investments were higher compared to the same period last year, increasing income as a percentage of average daily total net assets.

Negatives

• The fund is subject to market risk, particularly commodity price risk, which can lead to significant fluctuations in the value of its shares.
• BNO is exposed to credit risk from counterparties, especially in OTC swap transactions.
• The fund's performance can be affected by contango and backwardation in the crude oil futures market.
• The fund's expenses, including management fees and brokerage commissions, can impact its ability to perfectly track its benchmark.

Risks

• Geopolitical risks, including the Russia-Ukraine war and Middle East conflict, could lead to supply disruptions and increased volatility in commodity prices.
• The fund is exposed to commodity price risk, which can lead to significant fluctuations in the value of its shares.
• BNO is subject to credit risk from counterparties, especially in OTC swap transactions.
• The fund's performance can be affected by contango and backwardation in the crude oil futures market.
• Infectious disease outbreaks like COVID-19 could negatively affect BNO and the valuation and performance of BNO's investments.
• BNO may potentially lose money by investing in government money market funds.

Future Outlook

The document discusses factors that could influence future crude oil prices, including OPEC policy, non-OPEC production growth, and the global economy, but does not provide specific guidance.

Management Comments

• USCF believes that market arbitrage opportunities will cause daily changes in BNOs share price on the NYSE Arca on a percentage basis to closely track daily changes in BNOs per share NAV on a percentage basis.
• USCF believes that the net effect of these relationships will be that the daily changes in the price of BNOs 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 BNOs collateral holdings, less BNOs expenses.

Industry Context

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

Comparison to Industry Standards

• The document does not provide a direct comparison to industry standards.
• However, it mentions other related public funds managed by USCF, such as USO, UNG, UGA, UNL, USL, USCI and CPER, suggesting a similar operational structure within the commodity ETF space.
• The discussion of tracking error and the factors influencing it is a common metric for evaluating the performance of commodity ETFs compared to their benchmarks.

Legal Proceedings

• BNO and USCF are involved in several legal proceedings, including the Optimum Strategies Action, In re: United States Oil Fund, LP Securities Litigation, the Wang Class Action, the Mehan Action, and In re United States Oil Fund, LP Derivative Litigation.
• These proceedings primarily relate to disclosures and actions taken during the extraordinary market conditions in 2020, particularly concerning the COVID-19 pandemic and the Saudi Arabia-Russia oil price war.
• USCF and USO reached a resolution with the SEC and CFTC regarding matters set forth in certain Wells Notices, resulting in cease-and-desist orders and civil monetary penalties.

Related Party Transactions

• USCF receives a management fee calculated as a percentage of BNO's NAV.
• USCF pays the fees of the Marketing Agent and BNY Mellon for various services.
• BNO pays a portion of the fees and expenses of the independent directors of USCF.

Stakeholder Impact

• The fund's performance directly impacts shareholders through changes in NAV and market price.
• Market volatility and geopolitical events can affect the value of the fund's investments and, consequently, shareholder returns.
• Legal proceedings and regulatory actions can have financial and reputational implications for the fund and its stakeholders.

Key Dates

Keywords

Brent crude oil, futures contracts, NAV, BNO, United States Brent Oil Fund, commodity pool, oil market, USCF, financial results, Q1 2024