10-Q: United States Brent Oil Fund (BNO) Reports Q3 2024 Results: NAV Increases Amidst Market Volatility

United States Brent Oil Fund's NAV increased to $28.28 per share in Q3 2024, reflecting a 3.25% rise over the nine-month period, despite volatile Brent crude oil futures prices.

Summary

• United States Brent Oil Fund, LP (BNO) is a commodity pool aiming to mirror the daily percentage changes in the spot price of Brent crude oil.
• BNO's investment objective is to have the average daily percentage change in its NAV for any period of 30 successive valuation days to be within plus/minus ten percent (10%) of the average daily percentage change in the price of the Benchmark Futures Contract over the same period.
• For the 30-valuation days ended September 30, 2024, the average daily change in price of the Benchmark Futures Contract was (0.273)%, while the average daily change in the per share NAV of BNO over the same time period was (0.256)%.
• As of September 30, 2024, BNO had 7,650,000 shares outstanding.
• The per share NAV increased from $27.39 on December 31, 2023, to $28.28 on September 30, 2024, representing a 3.25% increase.
• The fund primarily invests in futures contracts for crude oil and other petroleum-based fuels.
• BNO's expenses include management fees, brokerage fees, and other operational costs.
• The fund's performance is influenced by factors such as contango and backwardation in the crude oil futures market.
• BNO is subject to regulatory oversight, including exchange accountability levels and position limits.
• The fund's liquidity needs are met through the sale of Creation Baskets and income earned on cash and cash equivalents.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the NAV increased, there were also net losses and ongoing risks associated with the oil market and geopolitical events. The fund is tracking its benchmark as expected.

Positives

• BNO's NAV increased by 3.25% over the nine-month period.
• The fund successfully tracked its benchmark within the established range.
• BNO has an unlimited number of shares that can be issued in the form of Creation Baskets.
• Average interest rates earned on short-term investments held by BNO, including cash, cash equivalents and Treasuries, were higher during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Negatives

• BNO experienced a net loss of $1,644,068 for the nine months ended September 30, 2024.
• The fund's performance is subject to the volatility of Brent crude oil prices.
• Contango in the futures market can negatively impact total returns.
• BNO is exposed to credit risk from counterparties in OTC contracts.

Risks

• The fund's performance is subject to the volatility of Brent crude oil prices and futures markets.
• Contango in the futures market can negatively impact total returns.
• Geopolitical risks, including the Russia-Ukraine war and Middle East conflict, could lead to supply disruptions and increased volatility.
• BNO is exposed to credit risk from counterparties in OTC contracts.
• Regulatory changes could impact the fund's operations.
• Infectious disease outbreaks like COVID-19 could negatively affect BNO and the valuation and performance of BNOs investments.
• BNO may potentially lose money by investing in government money market funds.

Future Outlook

The report discusses potential impacts from geopolitical events, OPEC actions, and the upcoming U.S. presidential election on crude oil prices and BNO's performance.

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, 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 compares BNO's performance to its benchmark, the Benchmark Futures Contract, and discusses factors that can impact tracking error.
• The report also includes correlation data comparing Brent crude oil price movements to other energy commodities and investment asset classes.
• The report mentions other related public funds managed by USCF, such as USO, UNG, UGA, UNL, USL, USCI and CPER.

Legal Proceedings

• BNO may be involved in legal proceedings arising primarily from the ordinary course of its business.
• USCF, as the general partner of BNO 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.
• The report discusses ongoing litigation involving USCF and USO, including the Optimum Strategies Action, In re: United States Oil Fund, LP Securities Litigation, Wang Class Action, Mehan Action, and In re United States Oil Fund, LP Derivative Litigation.

Related Party Transactions

• USCF receives a management fee calculated as a percentage of BNO's NAV.
• USCF pays the fees of the Marketing Agent as well as BNY Mellons fees for performing administrative, custodial, and transfer agency 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.
• Market volatility and geopolitical events can affect investor sentiment and trading activity.
• Regulatory changes can impact the fund's operations and investment strategies.

Next Steps

• BNO will continue to monitor market conditions, regulatory requirements, and risk mitigation measures to manage its portfolio and meet its investment objective.
• OPEC has fiercely supported prices with voluntary cuts and production quotas over the last several years and may change its plans if warranted by the data, reflecting the cartels current preference for higher prices rather than market share.

Key Dates

Keywords

Brent Crude Oil, Futures Contracts, NAV, Commodity Pool, USCF, BNO, Oil Market, Contango, Backwardation, Derivatives