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U.S. Oil Fund to Move Giant WTI Position as Market Sours

Published 04/17/2020, 08:34 AM
Updated 04/17/2020, 08:54 AM
© Reuters.  U.S. Oil Fund to Move Giant WTI Position as Market Sours
USO
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(Bloomberg) -- The $3.8 billion U.S. Oil Fund, which accounts for nearly 25% of all outstanding contracts in the most-traded West Texas Intermediate crude futures, said it will alter some of its position, citing market and regulatory conditions.

The exchange-traded fund, which normally holds WTI futures for the nearest month, will now move 20% of its contracts to the second-traded month. The change takes effect today and will be in place until further notice, it said in a filing with the U.S. Securities and Exchange Commission.

The shift, announced late on Thursday, coincided with sharp movements in the price relationship between the June and July WTI contracts, traders said.

“As a result of these changes, USO (NYSE:USO) may not be able to meet its investment objective,” according to the filing.

As of Thursday the fund held almost 150,000 June Nymex WTI contracts, which is more than a quarter of the total outstanding. It has received more than a billion dollars worth of inflows so far this week as WTI prices have plummeted below $20 a barrel.

Though low prices are attractive to many investors, they come at a cost. The nearest WTI contracts are trading more than $7 a barrel below the subsequent month. That means that investors face a 30% hit to keep the same position as futures contracts roll from one month to the next.

WTI’s June contract discount to July deepened 71 cents to $4.73 by 8:15 AM ET in New York on Friday. The move will see selling of June contracts and buying of July ones, which could widen the spread further.

 

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