USO Fund Faces Threats from Crude Short Speculators

The world’s largest crude oil ETF USO is being crushed by WTI short speculators who, by taking advantage of the US’ current storage capacity shortage, are forcing long position holders to give up all hope on oil price and surrender.

As an ETF, USO is naturally one of the largest holders of near-term WTI futures contracts. On April 20th, short speculators’ maneuvers slashed WTI contracts for May delivery to the unprecedented -US$37.6, which blew up the accounts of massive investors.USO, meanwhile, didn’t suffer much loss as it has rolled most of its expiring contracts over to further-out months.

On April 21st, short speculators further turned to target contracts for June delivery which composed the largest proportion of USO’s current holdings. On the same day, WTI June contracts at New York Mercantile Exchange was down over 38% to US$13.12 in just one day.

USO swiftly reacted to the imminent threat by filing a new 8-k document to regulation authority that spelled out several major changes.The most significant one is that starting from April 21st, 2020, USO will further diversify its portfolio and deploy capital to a variety of investments, in order to cushion the impact of unusual market situations, such as contango, and avoid pooling too much capital in short-term contracts that may be easily targeted by speculators.

The document also shows that as of April 21st, 2020, USO has reduced investment in WTI and Intercontinental ICE June contracts to about 40%, and increased its investment in NYMEX and other intercontinental crude oil futures contracts to 55%.