10-K: United States Brent Oil Fund, LP Reports Annual Results for 2023

United States Brent Oil Fund, LP (BNO) released its annual report for 2023, detailing its performance and financial position.

Summary

• The United States Brent Oil Fund, LP (BNO) is a commodity pool aiming to mirror the daily changes in the spot price of Brent crude oil.
• BNO's investment strategy involves primarily investing in futures contracts and, to a lesser extent, other crude oil-related investments.
• The fund's performance is influenced by market forces like contango and backwardation, which can cause deviations from the spot price of Brent crude oil.
• BNO's per share NAV decreased by approximately 3.08% over the year, ending at $27.39 on December 31, 2023.
• The Benchmark Futures Contract price decreased by approximately 10.32% over the year, closing at $77.04 per barrel.
• BNO's average daily total net assets were $187,828,085 for 2023, compared to $263,658,023 in 2022.
• The fund's annualized yield based on average daily total net assets was 4.57% in 2023, up from 1.29% in 2022.
• BNO's management fee was $1,408,752 in 2023, down from $1,977,435 in 2022.
• Total expenses, excluding management fees, were $358,043 in 2023, compared to $667,813 in 2022.
• BNO's total commissions accrued to brokers were $145,599 in 2023, down from $181,930 in 2022.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with a decrease in NAV and benchmark price, but an increase in yield and a decrease in expenses. The overall sentiment is slightly negative due to the negative returns.

Positives

• BNO's annualized yield based on average daily total net assets increased significantly to 4.57% in 2023.
• Total expenses, excluding management fees, decreased to $358,043 in 2023.
• BNO's total commissions accrued to brokers decreased to $145,599 in 2023.

Negatives

• BNO's per share NAV decreased by approximately 3.08% over the year.
• The Benchmark Futures Contract price decreased by approximately 10.32% over the year.
• BNO's average daily total net assets decreased to $187,828,085 in 2023.

Risks

• BNO's performance is subject to market risks, including fluctuations in crude oil prices and the impact of contango and backwardation.
• The fund is exposed to counterparty risk in OTC transactions.
• Regulatory changes and market events can impact BNO's ability to meet its investment objective.
• Infectious disease outbreaks like COVID-19 could negatively affect the valuation and performance of BNOs investments.
• BNO may potentially lose money by investing in government money market funds.
• The failure or bankruptcy of a clearing broker or BNOs Custodian could result in a substantial loss of BNOs assets.
• Due to the increased use of technologies, intentional and unintentional cyber-attacks pose operational and information security risks.
• BNOs investment returns could be negatively affected by climate change and greenhouse gas restrictions.

Future Outlook

BNO intends to continue to pursue its investment objective as described in the document, and USCF believes that the daily changes in percentage terms of BNOs NAV will continue to closely track the daily changes in percentage terms in the price of the Benchmark Futures Contract.

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 further believes that daily changes in prices of the Benchmark Futures Contract have historically closely tracked the daily changes in spot prices of Brent crude oil.
• 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

This announcement reflects the performance of a specialized commodity fund in a volatile energy market, influenced by global economic conditions, geopolitical events, and supply and demand dynamics. The fund's performance is directly tied to the price of Brent crude oil and the futures market, making it sensitive to these factors.

Comparison to Industry Standards

• BNO's performance is benchmarked against the daily changes in the spot price of Brent crude oil, as measured by the daily changes in the price of a specified short-term futures contract.
• The fund's goal is to have the average daily percentage change in its NAV within plus/minus ten percent (10%) of the average daily percentage changes in the price of the Benchmark Futures Contract over any 30-day period.
• The report notes that BNO's actual total return for 2023 was (3.08)%, while the expected total return based on the Benchmark Futures Contract was (6.62)%, indicating an outperformance of 3.54%.
• This tracking performance is a key metric for evaluating the fund's effectiveness compared to similar commodity-tracking ETFs.
• The report also discusses the impact of contango and backwardation, which are common factors affecting the performance of commodity futures-based funds, and how these market conditions can cause deviations from the spot price of Brent crude oil.

Legal Proceedings

• BNO and USCF were involved in various legal proceedings, including the Optimum Strategies Action, the Lucas Class Action, the Wang Class Action, the Mehan Action, and the Cantrell and AML Actions.
• USCF and USO reached a settlement with the SEC and CFTC relating to matters set forth in certain Wells Notices.

Related Party Transactions

• BNO has contractual obligations with USCF, including a management fee of 0.75% of average daily total net assets.
• USCF pays the fees of the Marketing Agent and BNY Mellon for their services to BNO.
• BNO pays a portion of the fees and expenses of the independent directors of USCF.

Stakeholder Impact

• Shareholders are exposed to market risks and the potential for losses due to fluctuations in crude oil prices.
• Authorized Participants are responsible for the creation and redemption of shares and pay transaction fees to BNO.
• Service providers, such as the custodian, administrator, and FCMs, are compensated for their services to BNO.

Next Steps

• BNO intends to continue to pursue its investment objective as described in the document.
• USCF will continue to monitor market conditions and regulatory requirements to manage BNO's investments.

Key Dates

Keywords

Brent crude oil, futures contracts, commodity pool, investment fund, contango, backwardation, NAV, NYSE Arca, USCF, energy market