A $3 billion oil ETF is being forced to revamp its portfolio thanks to oils historic plunge below $0

Neil Kremer

• US Oil Fund, one of the largest oil ETFs, has outlined a plan to revamp its portfolio amid the historic plunge in crude prices.
• Forced to make a radical change to its portfolio, the fund cited “extraordinary market conditions” and a “super contago” as reasons that led to its decision to make changes.
• The ETF plans to transfer money from its West Texas Intermediate oil futures contract set to expire in June to later-dated contracts and “other permitted investments”.
• Watch USO trade live here.

United States Oil Fund (USO), a popular exchange-traded oil fund, plans to revamp its portfolio after the commodity witnessed a historic price decline and remained stuck at record lows.

Below $0 crude oil prices would have an unprecedented impact for investors of the exchange-traded product – which is a regularly priced security that trades on exchanges similar to stocks. Oil demand has evaporated in recent weeks due to coronavirus-related global lockdowns, with the US crude oil price hitting its lowest-ever level. 

In a filing late in the trading day Tuesday, USO cited “extraordinary market conditions” and a “super contango” — when the futures price is higher than the spot price — that led to a decision to revamp its portfolio.

With around $3 billion in assets, USO plans to transfer money out of its crude oil futures contracts that will expire in June, to later-dated contracts and possibly “other permitted investments” based on energy products.

United States Commodity Funds (USCF) — which runs the USO fund — said that its anticipation of market conditions could lead it to take on “other oil-related investments” that allow for greater liquidity or to participate in transactions with “more favorable pricing.” 

USCF did not immediately respond to a request for comment from Markets Insider.

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Before the move to revamp its portfolio, USO’s prospectus laid out investment objectives that state it invests primarily in futures contracts for light, sweet crude oil, diesel-heating oil, gasoline, natural gas and other petroleum-based fuels traded on the NYMEX and ICE exchanges. 

USO’s trading paused early Tuesday after its shares plunged as much as 20% due to continued pressure from the oil market.

USCF announced in a regulatory filing it issued all of its currently remaining registered shares and required the Securities and Exchange Commission’s approval to register 4 billion more.

Once USO’s trading resumed, it slid further before paring some losses.