Company Quick10K Filing
Quick10K
United States Oil Fund
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-29 Regulation FD, Exhibits
8-K 2019-06-25 Regulation FD, Exhibits
8-K 2019-05-28 Regulation FD, Exhibits
8-K 2019-04-29 Regulation FD, Exhibits
8-K 2019-03-26 Regulation FD, Exhibits
8-K 2019-01-28 Regulation FD, Exhibits
8-K 2019-01-28 Regulation FD, Exhibits
8-K 2018-12-21 Regulation FD, Exhibits
8-K 2018-11-29 Regulation FD, Exhibits
8-K 2018-10-30 Regulation FD, Exhibits
8-K 2018-09-27 Regulation FD, Exhibits
8-K 2018-08-27 Regulation FD, Exhibits
8-K 2018-07-30 Regulation FD, Exhibits
8-K 2018-06-21 Regulation FD, Exhibits
8-K 2018-05-23 Regulation FD, Exhibits
8-K 2018-04-27 Regulation FD, Exhibits
8-K 2018-03-29 Regulation FD, Exhibits
8-K 2018-03-28 Regulation FD, Exhibits
8-K 2018-01-30 Regulation FD, Exhibits
PPL PPL 21,840
ENBL Enable Midstream Partners 5,970
TPX Tempur Sealy 3,390
TTMI TTM Technologies 1,200
CUBI Customers Bancorp 677
HCAC Hennessy Capital Acquisition III 296
ULU Uluru 0
ASNB Advansource Biomaterials 0
VSAR Versartis 0
BMNM Bimini Capital Management 0
USO 2019-06-30
Part I. Financial Information
Item 1. Condensed Financial Statements.
Note 1 - Organization and Business
Note 2 - Summary of Significant Accounting Policies
Note 3 - Fees Paid By The Fund and Related Party Transactions
Note 4 - Contracts and Agreements
Note 5 - Financial Instruments, Off-Balance Sheet Risks and Contingencies
Note 6 - Financial Highlights
Note 7 - Fair Value of Financial Instruments
Note 8 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 uso-20190630ex3113b1ae6.htm
EX-31.2 uso-20190630ex312ea0dd2.htm
EX-32.1 uso-20190630ex321548d64.htm
EX-32.2 uso-20190630ex3226107c3.htm

United States Oil Fund Earnings 2019-06-30

USO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2019.

OR

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                      to                     .

Commission file number: 001-32834

United States Oil Fund, LP

(Exact name of registrant as specified in its charter)

Delaware

    

20-2830691

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1850 Mt. Diablo Boulevard, Suite 640

Walnut Creek, California 94596

(Address of principal executive offices) (Zip code)

(510) 522-9600

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol(s)

Name of each exchange on which registered:

Shares of United States Oil Fund, LP

USO

NYSE Arca, Inc.

The registrant had 119,600,000 outstanding shares as of August 5, 2019.

Table of Contents

UNITED STATES OIL FUND, LP

Table of Contents

    

Page

Part I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements.

1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

16

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

34

Item 4. Controls and Procedures.

36

Part II. OTHER INFORMATION

Item 1. Legal Proceedings.

37

Item 1A. Risk Factors.

37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

37

Item 3. Defaults Upon Senior Securities.

37

Item 4. Mine Safety Disclosures.

37

Item 5. Other Information.

37

Item 6. Exhibits.

38

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements.

Index to Condensed Financial Statements

Documents

    

Page

Condensed Statements of Financial Condition at June 30, 2019 (Unaudited) and December 31, 2018

2

 

Condensed Schedule of Investments (Unaudited) at June 30, 2019

3

 

Condensed Statements of Operations (Unaudited) for the three and six months ended June 30, 2019 and 2018

4

 

Condensed Statement of Changes in Partners’ Capital (Unaudited) for the six months ended June 30, 2019

5

 

Condensed Statements of Cash Flows (Unaudited) for the six months ended June 30, 2019 and 2018

6

 

Notes to Condensed Financial Statements for the period ended June 30, 2019 (Unaudited)

7

1

Table of Contents

United States Oil Fund, LP

Condensed Statements of Financial Condition

At June 30, 2019 (Unaudited) and December 31, 2018

    

June 30, 2019

    

December 31, 2018

Assets

 

  

 

  

Cash and cash equivalents (at cost $1,337,255,138 and $1,223,159,803, respectively) (Notes 2 and 5)

$

1,337,255,138

$

1,223,159,803

Equity in trading accounts:

 

  

 

Cash and cash equivalents (at cost $148,739,529 and $433,776,173, respectively)

 

148,739,529

 

433,776,173

Unrealized gain (loss) on open commodity futures contracts

 

118,917,890

 

(194,392,958)

Receivable for shares sold

 

33,971,896

 

22,022,450

Dividends receivable

 

195,712

 

144,034

Interest receivable

 

19,303

 

29,030

Directors' fees and insurance receivable

76,169

Prepaid registration fees

 

301,089

 

579,117

ETF transaction fees receivable

 

3,000

 

2,000

 

  

 

  

Total assets

$

1,639,479,726

$

1,485,319,649

 

  

 

  

Liabilities and Partners’ Capital

 

  

 

  

Payable due to Broker

$

131,064,529

$

Payable for shares redeemed

 

44,891,434

 

14,377,830

General Partner management fees payable (Note 3)

 

526,980

 

583,978

Professional fees payable

 

826,724

 

1,741,281

Brokerage commissions payable

 

89,961

 

89,961

Directors’ fees and insurance payable

 

 

11,249

License fees payable

 

46,989

 

53,638

 

  

 

  

Total liabilities

 

177,446,617

 

16,857,937

 

  

 

  

Commitments and Contingencies  (Notes 3, 4 and 5)

 

  

 

  

 

  

 

  

Partners’ Capital

 

  

 

  

General Partner

 

 

Limited Partners

 

1,462,033,109

 

1,468,461,712

Total Partners’ Capital

 

1,462,033,109

 

1,468,461,712

 

  

 

  

Total liabilities and partners’ capital

$

1,639,479,726

$

1,485,319,649

 

  

 

  

Limited Partners’ shares outstanding

 

120,500,000

 

153,200,000

Net asset value per share

$

12.13

$

9.59

Market value per share

$

12.04

$

9.66

See accompanying notes to condensed financial statements.

2

Table of Contents

United States Oil Fund, LP

Condensed Schedule of Investments (Unaudited)

At June 30, 2019

Value/

Unrealized Gain

(Loss) on Open

% of

Notional

Number of

Commodity

Partners’

    

Amount

    

Contracts

    

Contracts

    

Capital

Open Futures Contracts – Long

 

  

 

  

 

  

 

  

United States Contracts

 

  

 

  

 

  

 

  

NYMEX WTI Crude Oil Futures CL August 2019 contracts, expiring July 2019*

$

1,343,065,990

 

25,004

$

118,917,890

 

8.13

Principal

Market

    

    

Amount

    

Value

    

Cash Equivalents

 

  

 

  

 

  

 

  

United States Treasury Obligations

 

  

 

  

 

  

 

  

U.S. Treasury Bills:

 

  

 

  

 

  

 

  

2.47%, 7/05/2019

 

  

$

25,000,000

$

24,993,236

 

1.71

2.48%, 7/11/2019

 

  

 

50,000,000

 

49,965,937

 

3.42

2.47%, 7/18/2019

 

  

 

50,000,000

 

49,942,389

 

3.42

2.47%, 7/25/2019

 

  

 

60,000,000

 

59,902,400

 

4.10

2.48%, 8/01/2019

 

  

 

50,000,000

 

49,894,514

 

3.41

2.46%, 8/08/2019

 

  

 

50,000,000

 

49,871,750

 

3.41

2.47%, 8/15/2019

 

  

 

70,000,000

 

69,786,499

 

4.77

2.47%, 8/22/2019

 

  

 

50,000,000

 

49,824,139

 

3.41

2.48%, 8/29/2019

 

  

 

50,000,000

 

49,799,236

 

3.41

2.48%, 9/05/2019

 

  

 

50,000,000

 

49,775,417

 

3.40

2.48%, 9/12/2019

 

  

 

50,000,000

 

49,752,104

 

3.40

2.46%, 9/19/2019

 

  

 

50,000,000

 

49,730,000

 

3.40

2.41%, 9/26/2019

 

  

 

50,000,000

 

49,711,813

 

3.40

2.40%, 10/03/2019

 

  

 

50,000,000

 

49,689,931

 

3.40

2.41%, 10/10/2019

 

  

 

50,000,000

 

49,665,437

 

3.40

2.42%, 10/17/2019

 

  

 

50,000,000

 

49,641,499

 

3.39

2.40%, 10/24/2019

 

  

 

50,000,000

 

49,621,458

 

3.39

2.37%, 10/31/2019

 

  

 

50,000,000

 

49,603,500

 

3.39

2.40%, 11/07/2019

 

  

 

50,000,000

 

49,574,479

 

3.39

2.38%, 11/14/2019

 

  

 

50,000,000

 

49,555,168

 

3.39

2.37%, 11/21/2019

 

  

 

50,000,000

 

49,535,250

 

3.39

2.33%, 11/29/2019

 

  

 

50,000,000

 

49,516,590

 

3.39

2.20%, 12/05/2019

 

  

 

50,000,000

 

49,524,639

 

3.39

2.16%, 12/12/2019

 

  

 

50,000,000

 

49,512,556

 

3.39

2.15%, 12/19/2019

 

  

 

50,000,000

 

49,495,313

 

3.39

2.07%, 12/26/2019

 

  

 

50,000,000

 

49,494,430

 

3.38

Total Treasury Obligations

 

  

 

  

 

1,297,379,684

 

88.74

United States - Money Market Funds

 

  

 

  

 

  

 

  

Fidelity Investments Money Market Funds - Government Portfolio

 

  

 

20,000,000

 

20,000,000

 

1.37

Goldman Sachs Financial Square Funds - Government Fund - Class FS

 

  

 

80,000,000

 

80,000,000

 

5.47

Morgan Stanley Institutional Liquidity Funds - Government Portfolio

 

  

 

80,000,000

 

80,000,000

 

5.47

Total Money Market Funds

 

  

 

  

 

180,000,000

 

12.31

Total Cash Equivalents

 

  

 

  

$

1,477,379,684

 

101.05

*   Collateral amounted to $148,739,529 on open futures contracts.

See accompanying notes to condensed financial statements.

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United States Oil Fund, LP

Condensed Statements of Operations (Unaudited)

For the three and six months ended June 30, 2019 and 2018

Three months ended

Three months ended

Six months ended

Six months ended

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

Income

 

  

 

  

 

  

 

  

Gain (loss) on trading of commodity futures contracts:

 

  

 

  

 

  

 

  

Realized gain (loss) on closed futures contracts

$

(67,581,780)

$

147,388,830

$

69,425,902

$

330,678,000

Change in unrealized gain (loss) on open futures contracts

 

35,897,190

 

101,314,400

 

313,310,848

 

85,850,330

Dividend income

 

961,575

 

487,147

 

2,668,218

 

770,553

Interest income*

 

7,979,767

 

7,348,066

 

15,847,217

 

13,643,042

ETF transaction fees

 

80,000

 

81,000

 

154,000

 

196,000

 

  

 

  

 

  

 

  

Total income (loss)

 

(22,663,248)

 

256,619,443

 

401,406,185

 

431,137,925

 

  

 

  

 

  

 

  

Expenses

 

  

 

  

 

  

 

  

General Partner management fees (Note 3)

 

1,666,525

 

2,121,257

 

3,469,952

 

4,308,763

Professional fees

 

405,136

 

461,537

 

805,819

 

970,222

Brokerage commissions

 

581,879

 

652,149

 

1,279,813

 

1,346,629

Directors’ fees and insurance

 

71,055

 

80,087

 

152,776

 

155,643

License fees

 

55,551

 

70,708

 

115,665

 

143,625

Registration fees

 

150,142

 

5,899

 

278,028

 

87,363

 

  

 

  

 

  

 

  

Total expenses

 

2,930,288

 

3,391,637

 

6,102,053

 

7,012,245

 

  

 

  

 

  

 

  

Net income (loss)

$

(25,593,536)

$

253,227,806

$

395,304,132

$

424,125,680

Net income (loss) per limited partnership share

$

(0.37)

$

1.92

$

2.54

$

2.94

Net income (loss) per weighted average limited partnership share

$

(0.21)

$

1.83

$

3.02

$

2.88

Weighted average limited partnership shares outstanding

 

119,445,055

 

138,279,121

 

130,784,530

 

147,175,138

*   Interest income does not exceed paid in kind of 5%.

See accompanying notes to condensed financial statements.

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United States Oil Fund, LP

Condensed Statement of Changes in Partners’ Capital (Unaudited)

For the six months ended June 30, 2019

    

General Partner

    

Limited Partners

    

Total

Balances, at December 31, 2018

 

$

 

$

1,468,461,712

 

$

1,468,461,712

Addition of 126,000,000 partnership shares

1,480,470,015

1,480,470,015

Redemption of 158,700,000 partnership shares

(1,882,202,750)

(1,882,202,750)

Net income (loss)

395,304,132

395,304,132

Balances, at June 30, 2019

 

$

 

$

1,462,033,109

 

$

1,462,033,109

Net Asset Value Per Share:

At December 31, 2018

 

$

9.59

At June 30, 2019

 

$

12.13

See accompanying notes to condensed financial statements.

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United States Oil Fund, LP

Condensed Statements of Cash Flows (Unaudited)

For the six months ended June 30, 2019 and 2018

Six months ended

Six months ended

    

June 30, 2019

    

June 30, 2018

Cash Flows from Operating Activities:

  

  

Net income (loss)

$

395,304,132

$

424,125,680

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

  

 

  

Unrealized (gain) loss on open futures contracts

 

(313,310,848)

 

(85,850,330)

(Increase) decrease in dividends receivable

 

(51,678)

 

(85,373)

(Increase) decrease in interest receivable

 

9,727

 

(20,344)

(Increase) decrease in directors’ fees and insurance receivable

 

(76,169)

 

(51,967)

(Increase) decrease in prepaid registration fees

 

278,028

 

87,363

(Increase) decrease in ETF transaction fees receivable

 

(1,000)

 

(1,000)

Increase (decrease) in payable due to Broker

 

131,064,529

 

119,207,725

Increase (decrease) in General Partner management fees payable

 

(56,998)

 

(125,088)

Increase (decrease) in professional fees payable

 

(914,557)

 

(761,854)

Increase (decrease) in brokerage commissions payable

 

 

(50,000)

Increase (decrease) in directors’ fees and insurance payable

 

(11,249)

 

(21,788)

Increase (decrease) in license fees payable

 

(6,649)

 

(12,185)

Net cash provided by (used in) operating activities

 

212,227,268

 

456,440,839

Cash Flows from Financing Activities:

 

  

 

  

Addition of partnership shares

 

1,468,520,569

 

1,820,121,109

Redemption of partnership shares

 

(1,851,689,146)

 

(2,430,016,001)

Net cash provided by (used in) financing activities

 

(383,168,577)

 

(609,894,892)

Net Increase (Decrease) in Cash and Cash Equivalents

 

(170,941,309)

 

(153,454,053)

Total Cash, Cash Equivalents and Equity in Trading Accounts, beginning of period

 

1,656,935,976

 

1,991,256,955

Total Cash, Cash Equivalents and Equity in Trading Accounts, end of period

$

1,485,994,667

$

1,837,802,902

Components of Cash and Cash Equivalents:

 

  

 

  

Cash and Cash Equivalents

$

1,337,255,138

$

1,713,363,666

Equity in Trading Accounts:

 

  

 

  

Cash and Cash Equivalents

 

148,739,529

 

124,439,236

Total Cash, Cash Equivalents and Equity in Trading Accounts

$

1,485,994,667

$

1,837,802,902

See accompanying notes to condensed financial statements.

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United States Oil Fund, LP

Notes to Condensed Financial Statements

For the period ended June 30, 2019 (Unaudited)

NOTE 1 — ORGANIZATION AND BUSINESS

The United States Oil Fund, LP (“USO”) was organized as a limited partnership under the laws of the state of Delaware on May 12, 2005. USO is a commodity pool that issues limited partnership shares (“shares”) that may be purchased and sold on the NYSE Arca, Inc. (the “NYSE Arca”). Prior to November 25, 2008, USO’s shares traded on the American Stock Exchange (the “AMEX”). USO will continue in perpetuity, unless terminated sooner upon the occurrence of one or more events as described in its Seventh Amended and Restated Agreement of Limited Partnership dated as of December 15, 2017 (the “LP Agreement”). The investment objective of USO is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in the price of the futures contract for light, sweet crude oil traded on the New York Mercantile Exchange (the “NYMEX”) that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire (the “Benchmark Oil Futures Contract”), plus interest earned on USO’s collateral holdings, less USO’s expenses.

USO’s investment objective is not for its NAV or market price of shares to equal, in dollar terms, the spot price of light, sweet crude oil or any particular futures contract based on light, sweet crude oil, nor is USO’s investment objective for the percentage change in its NAV to reflect the percentage change of the price of any particular futures contract as measured over a time period greater than one day.

United States Commodity Funds LLC (“USCF”), the general partner of USO, believes that it is not practical to manage the portfolio to achieve such an investment goal when investing in Oil Futures Contracts (as defined below) and Other Oil-Related Investments (as defined below). USO accomplishes its objective through investments in futures contracts for light, sweet crude oil and other types of crude oil, diesel-heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges (collectively, “Oil Futures Contracts”) and other oil-related investments such as cash-settled options on Oil Futures Contracts, forward contracts for oil, cleared swap contracts and over-the-counter (“OTC”) transactions that are based on the price of crude oil, diesel-heating oil, gasoline, natural gas and other petroleum-based fuels, Oil Futures Contracts and indices based on the foregoing (collectively, “Other Oil-Related Investments”). As of June 30, 2019, USO held 25,004 Oil Futures Contracts for light, sweet crude oil traded on the NYMEX and did not hold any Oil Futures Contracts for light, sweet crude oil traded on the ICE Futures Europe.

USO commenced investment operations on April 10, 2006 and has a fiscal year ending on December 31. USCF is responsible for the management of USO. USCF is a member of the National Futures Association (the “NFA”) and became registered as a commodity pool operator with the Commodity Futures Trading Commission (the “CFTC”) effective December 1, 2005 and a swaps firm on August 8, 2013.

USCF is also the general partner of the United States Natural Gas Fund, LP (“UNG”), the United States 12 Month Oil Fund, LP (“USL”) and the United States Gasoline Fund, LP (“UGA”), which listed their limited partnership shares on the AMEX under the ticker symbols “UNG” on April 18, 2007, “USL” on December 6, 2007 and “UGA” on February 26, 2008, respectively. As a result of the acquisition of the AMEX by NYSE Euronext, each of UNG’s, USL’s and UGA’s shares commenced trading on the NYSE Arca on November 25, 2008. USCF is also the general partner of the United States 12 Month Natural Gas Fund, LP (“UNL”) and the United States Brent Oil Fund, LP (“BNO”), which listed their limited partnership shares on the NYSE Arca under the ticker symbols “UNL” on November 18, 2009 and “BNO” on June 2, 2010, respectively. USCF previously served as the general partner for the United States Short Oil Fund, LP (“DNO”) and the United States Diesel-Heating Oil Fund, LP (“UHN”), both of which were liquidated in 2018.

USCF is also the sponsor of the United States Commodity Index Funds Trust, a Delaware statutory trust, and each of its series, the United States Commodity Index Fund (“USCI”), the United States Copper Index Fund (“CPER”), the USCF Crescent Crypto Index Fund (“XBET”) and the United States Agriculture Index Fund (“USAG”). USAG was liquidated in 2018. USCI and CPER listed their shares on the NYSE Arca under the ticker symbols “USCI” on August 10, 2010 and “CPER” on November 15, 2011, respectively.

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In addition, USCF is the sponsor of the USCF Funds Trust, a Delaware statutory trust, and each of its series, the United States 3x Oil Fund (“USOU”) and the United States 3x Short Oil Fund (“USOD”), which commenced operations on July 20, 2017.

All funds listed previously, other than XBET, USAG, DNO and UHN, are referred to collectively herein as the “Related Public Funds.”

USO issues shares to certain authorized purchasers (“Authorized Participants”) by offering baskets consisting of 100,000 shares (“Creation Baskets”) through ALPS Distributors, Inc., as the marketing agent (the “Marketing Agent”). The purchase price for a Creation Basket is based upon the NAV of a share calculated shortly after the close of the core trading session on the NYSE Arca on the day the order to create the basket is properly received.

Authorized Participants pay USO a transaction fee of $1,000 for each order placed to create one or more Creation Baskets or to redeem one or more baskets (“Redemption Baskets”), consisting of 100,000 shares. Shares may be purchased or sold on a nationally recognized securities exchange in smaller increments than a Creation Basket or Redemption Basket. Shares purchased or sold on a nationally recognized securities exchange are not purchased or sold at the per share NAV of USO but rather at market prices quoted on such exchange.

In April 2006, USO initially registered 17,000,000 shares on Form S-1 with the U.S. Securities and Exchange Commission (the “SEC”). On April 10, 2006, USO listed its shares on the AMEX under the ticker symbol “USO” and switched to trading on the NYSE Arca under the same ticker symbol on November 25, 2008. On that day, USO established its initial per share NAV by setting the price at $67.39 and issued 200,000 shares in exchange for $13,479,000. USO also commenced investment operations on April 10, 2006, by purchasing Oil Futures Contracts traded on the NYMEX based on light, sweet crude oil. As of June 30, 2019, USO had registered a total of 3,127,000,000 shares.

The accompanying unaudited condensed financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the SEC and, therefore, do not include all information and footnote disclosure required under generally accepted accounting principles in the United States of America (“U.S. GAAP”). The financial information included herein is unaudited; however, such financial information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of USCF, necessary for the fair presentation of the condensed financial statements for the interim period.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed financial statements have been prepared in conformity with U.S. GAAP as detailed in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification. USO is an investment company and follows the accounting and reporting guidance in FASB Topic 946.

Revenue Recognition

Commodity futures contracts, forward contracts, physical commodities and related options are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized gains or losses on open contracts are reflected in the condensed statements of financial condition and represent the difference between the original contract amount and the market value (as determined by exchange settlement prices for futures contracts and related options and cash dealer prices at a predetermined time for forward contracts, physical commodities, and their related options) as of the last business day of the year or as of the last date of the condensed financial statements. Changes in the unrealized gains or losses between periods are reflected in the condensed statements of operations. USO earns income on funds held at the custodian or a futures commission merchant (“FCM”) at prevailing market rates earned on such investments.

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Brokerage Commissions

Brokerage commissions on all open commodity futures contracts are accrued on a full-turn basis.

Income Taxes

USO is not subject to federal income taxes; each partner reports his/her allocable share of income, gain, loss deductions or credits on his/her own income tax return.

In accordance with U.S. GAAP, USO is required to determine whether a tax position is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any tax related appeals or litigation processes, based on the technical merits of the position. USO files an income tax return in the U.S. federal jurisdiction and may file income tax returns in various U.S. states. USO is not subject to income tax return examinations by major taxing authorities for years before 2015. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized results in USO recording a tax liability that reduces net assets. However, USO’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analysis of and changes to tax laws, regulations and interpretations thereof. USO recognizes interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of and for the period ended June 30, 2019.

Creations and Redemptions

Authorized Participants may purchase Creation Baskets or redeem Redemption Baskets only in blocks of 100,000 shares at a price equal to the NAV of the shares calculated shortly after the close of the core trading session on the NYSE Arca on the day the order is placed.

USO receives or pays the proceeds from shares sold or redeemed within two business days after the trade date of the purchase or redemption. The amounts due from Authorized Participants are reflected in USO’s condensed statements of financial condition as receivable for shares sold and amounts payable to Authorized Participants upon redemption are reflected as payable for shares redeemed.

Authorized Participants pay USO a transaction fee of $1,000 for each order placed to create one or more Creation Baskets or to redeem one or more Redemption Baskets.

Partnership Capital and Allocation of Partnership Income and Losses

Profit or loss shall be allocated among the partners of USO in proportion to the number of shares each partner holds as of the close of each month. USCF may revise, alter or otherwise modify this method of allocation as described in the LP Agreement.

Calculation of Per Share NAV

USO’s per share NAV is calculated on each NYSE Arca trading day by taking the current market value of its total assets, subtracting any liabilities and dividing that amount by the total number of shares outstanding. USO uses the closing price for the contracts on the relevant exchange on that day to determine the value of contracts held on such exchange.

Net Income (Loss) Per Share

Net income (loss) per share is the difference between the per share NAV at the beginning of each period and at the end of each period. The weighted average number of shares outstanding was computed for purposes of disclosing net income (loss) per weighted average share. The weighted average shares are equal to the number of shares outstanding at the end of the period, adjusted proportionately for shares added and redeemed based on the amount of time the shares were outstanding during such period. There were no shares held by USCF at June 30, 2019.

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Offering Costs

Offering costs incurred in connection with the registration of additional shares after the initial registration of shares are borne by USO. These costs include registration fees paid to regulatory agencies and all legal, accounting, printing and other expenses associated with such offerings. These costs are accounted for as a deferred charge and thereafter amortized to expense over twelve months on a straight-line basis or a shorter period if warranted.

Cash Equivalents

Cash equivalents include money market funds and overnight deposits or time deposits with original maturity dates of six months or less.

Reclassification

Certain amounts in the accompanying condensed financial statements were reclassified to conform to the current presentation.

Use of Estimates

The preparation of condensed financial statements in conformity with U.S. GAAP requires USCF to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements, and the reported amounts of the revenue and expenses during the reporting period. Actual results may differ from those estimates and assumptions.

NOTE 3 — FEES PAID BY THE FUND AND RELATED PARTY TRANSACTIONS

USCF Management Fee

Under the LP Agreement, USCF is responsible for investing the assets of USO in accordance with the objectives and policies of USO. In addition, USCF has arranged for one or more third parties to provide administrative, custody, accounting, transfer agency and other necessary services to USO. For these services, USO is contractually obligated to pay USCF a fee, which is paid monthly, equal to 0.45% per annum of average daily total net assets.

Ongoing Registration Fees and Other Offering Expenses

USO pays all costs and expenses associated with the ongoing registration of its shares subsequent to the initial offering. These costs include registration or other fees paid to regulatory agencies in connection with the offer and sale of shares, and all legal, accounting, printing and other expenses associated with such offer and sale. For the six months ended June 30, 2019 and 2018, USO incurred $278,028 and $87,363, respectively, in registration fees and other offering expenses.

Independent Directors’ and Officers’ Expenses

USO is responsible for paying its portion of the directors’ and officers’ liability insurance for USO and the Related Public Funds and the fees and expenses of the independent directors who also serve as audit committee members of USO and the Related Public Funds. USO shares the fees and expenses on a pro rata basis with each Related Public Fund, as described above, based on the relative assets of each Related Public Fund computed on a daily basis. These fees and expenses for the year ending December 31, 2019 are estimated to be a total of $339,000 for USO and, in the aggregate for USO and the Related Public Funds, $543,500.

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Licensing Fees

As discussed in Note 4 below, USO entered into a licensing agreement with the NYMEX on April 10, 2006, as amended on October 20, 2011. Pursuant to the agreement, USO and the Related Public Funds, other than BNO, USCI, CPER, USOU and USOD, pay a licensing fee that is equal to 0.015% on all net assets. During the six months ended June 30, 2019 and 2018, USO incurred $115,665 and $143,625, respectively, under this arrangement.

Investor Tax Reporting Cost

The fees and expenses associated with USO’s audit expenses and tax accounting and reporting requirements are paid by USO. These costs are estimated to be $1,500,000 for the year ending December 31, 2019. Tax reporting costs fluctuate between years due to the number of shareholders during any given year.

Other Expenses and Fees

In addition to the fees described above, USO pays all brokerage fees and other expenses in connection with the operation of USO, excluding costs and expenses paid by USCF as outlined in Note 4 – Contracts and Agreements below.

NOTE 4 — CONTRACTS AND AGREEMENTS

Marketing Agent Agreement

USO is party to a marketing agent agreement, dated as of March 13, 2006, as amended from time to time, with the Marketing Agent and USCF, whereby the Marketing Agent provides certain marketing services for USO as outlined in the agreement. The fees of the Marketing Agent, which are borne by USCF, include a marketing fee of $425,000 per annum plus the following incentive fee: 0.00% on USO’s assets from $0 – $500 million; 0.04% on USO’s assets from $500 million – $4 billion and 0.03% on USO’s assets in excess of $4 billion. In no event may the aggregate compensation paid to the Marketing Agent and any affiliate of USCF for distribution-related services exceed 10% of the gross proceeds of USO’s offering.

The above fee does not include website construction and development, which are also borne by USCF.

Brown Brothers Harriman & Co. Agreements

USO is also party to a custodian agreement, dated March 13, 2006, as amended from time to time, with Brown Brothers Harriman & Co. (“BBH&Co.”) and USCF, whereby BBH&Co. holds investments on behalf of USO. USCF pays the fees of the custodian, which are determined by the parties from time to time. In addition, USO is party to an administrative agency agreement, dated March 13, 2006, as amended from time to time, with USCF and BBH&Co., whereby BBH&Co. acts as the administrative agent, transfer agent and registrar for USO. USCF also pays the fees of BBH&Co. for its services under such agreement and such fees are determined by the parties from time to time.

Currently, USCF pays BBH&Co. for its services, in the foregoing capacities, a minimum amount of $75,000 annually for its custody, fund accounting and fund administration services rendered to USO and each of the Related Public Funds, as well as a $20,000 annual fee for its transfer agency services. In addition, USCF pays BBH&Co. an asset-based charge of (a) 0.06% for the first $500 million of the Related Public Funds’ combined net assets, (b) 0.0465% for the Related Public Funds’ combined net assets greater than $500 million but less than $1 billion, and (c) 0.035% once the Related Public Funds’ combined net assets exceed $1 billion. The annual minimum amount will not apply if the asset-based charge for all accounts in the aggregate exceeds $75,000. USCF also pays BBH&Co. transaction fees ranging from $7 to $15 per transaction.

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Brokerage and Futures Commission Merchant Agreements

On October 8, 2013, USO entered into a brokerage agreement with RBC Capital Markets LLC (“RBC”) to serve as USO’s FCM effective October 10, 2013. The agreement with RBC requires it to provide services to USO in connection with the purchase and sale of Oil Futures Contracts and Other Oil-Related Investments that may be purchased and sold by or through RBC for USO’s account. In accordance with the agreement, RBC charges USO commissions of approximately $7 to $8 per round-turn trade, including applicable exchange, clearing and NFA fees for Oil Futures Contracts and options on Oil Futures Contracts. Such fees include those incurred when purchasing Oil Futures Contracts and options on Oil Futures Contracts when USO issues shares as a result of a Creation Basket, as well as fees incurred when selling Oil Futures Contracts and options on Oil Futures Contracts when USO redeems shares as a result of a Redemption Basket. Such fees are also incurred when Oil Futures Contracts and options on Oil Futures Contracts are purchased or redeemed for the purpose of rebalancing the portfolio. USO also incurs commissions to brokers for the purchase and sale of Oil Futures Contracts, Other Oil-Related Investments or short-term obligations of the United States of two years or less (“Treasuries”).

For the six months

For the six months

 

ended

ended

 

    

June 30, 2019

    

June 30, 2018

 

Total commissions accrued to brokers

$

1,279,813

$

1,346,629

Total commissions as annualized percentage of average total net assets

 

0.17

%  

 

0.14

%

Commissions accrued as a result of rebalancing

$

1,113,299

$

1,151,426

Percentage of commissions accrued as a result of rebalancing

 

86.99

%  

 

85.50

%

Commissions accrued as a result of creation and redemption activity

$

166,514

$

195,203

Percentage of commissions accrued as a result of creation and redemption activity

 

13.01

%  

 

14.50

%

The decrease in total commissions accrued to brokers for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, was due primarily to a lower number of crude oil futures contracts being held and traded.

NYMEX Licensing Agreement

USO and the NYMEX entered into a licensing agreement on April 10, 2006, as amended on October 20, 2011, whereby USO was granted a non-exclusive license to use certain of the NYMEX’s settlement prices and service marks. Under the licensing agreement, USO and the Related Public Funds, other than BNO, USCI, CPER, USOU and USOD, pay the NYMEX an asset-based fee for the license, the terms of which are described in Note 3. USO expressly disclaims any association with the NYMEX or endorsement of USO by the NYMEX and acknowledges that “NYMEX” and “New York Mercantile Exchange” are registered trademarks of the NYMEX.

NOTE 5 — FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND CONTINGENCIES

USO may engage in the trading of futures contracts, options on futures contracts, cleared swaps and OTC swaps (collectively, “derivatives”). USO is exposed to both market risk, which is the risk arising from changes in the market value of the contracts, and credit risk, which is the risk of failure by another party to perform according to the terms of a contract.

USO may enter into futures contracts, options on futures contracts and cleared swaps to gain exposure to changes in the value of an underlying commodity. A futures contract obligates the seller to deliver (and the purchaser to accept) the future delivery of a specified quantity and type of a commodity at a specified time and place. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity or by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date of delivery. Cleared swaps are agreements that are eligible to be cleared by a clearinghouse, e.g., ICE Clear Europe, and provide the efficiencies and benefits that centralized clearing on an exchange offers to traders of futures contracts, including credit risk intermediation and the ability to offset positions initiated with different counterparties.

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The purchase and sale of futures contracts, options on futures contracts and cleared swaps require margin deposits with an FCM. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires an FCM to segregate all customer transactions and assets from the FCM’s proprietary activities.

Futures contracts, options on futures contracts and cleared swaps involve, to varying degrees, elements of market risk (specifically commodity price risk) and exposure to loss in excess of the amount of variation margin. The face or contract amounts reflect the extent of the total exposure USO has in the particular classes of instruments. Additional risks associated with the use of futures contracts are an imperfect correlation between movements in the price of the futures contracts and the market value of the underlying securities and the possibility of an illiquid market for a futures contract. Buying and selling options on futures contracts exposes investors to the risks of purchasing or selling futures contracts.

All of the futures contracts held by USO through June 30, 2019 were exchange-traded. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with OTC swaps since, in OTC swaps, a party must rely solely on the credit of its respective individual counterparties. However, in the future, if USO were to enter into non-exchange traded contracts, it would be subject to the credit risk associated with counterparty non-performance. The credit risk from counterparty non-performance associated with such instruments is the net unrealized gain, if any, on the transaction. USO has credit risk under its futures contracts since the sole counterparty to all domestic and foreign futures contracts is the clearinghouse for the exchange on which the relevant contracts are traded. In addition, USO bears the risk of financial failure by the clearing broker.

USO’s cash and other property, such as Treasuries, deposited with an FCM are considered commingled with all other customer funds, subject to the FCM’s segregation requirements. In the event of an FCM’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than the total of cash and other property deposited. The insolvency of an FCM could result in the complete loss of USO’s assets posted with that FCM; however, the majority of USO’s assets are held in investments in Treasuries, cash and/or cash equivalents with USO’s custodian and would not be impacted by the insolvency of an FCM. The failure or insolvency of USO’s custodian, however, could result in a substantial loss of USO’s assets.

USCF invests a portion of USO’s cash in money market funds that seek to maintain a stable per share NAV. USO is exposed to any risk of loss associated with an investment in such money market funds. As of June 30, 2019 and December 31, 2018, USO held investments in money market funds in the amounts of $180,000,000 and $52,000,000, respectively. USO also holds cash deposits with its custodian. Pursuant to a written agreement with BBH&Co., uninvested overnight cash balances are swept to offshore branches of U.S. regulated and domiciled banks located in Toronto, Canada; London, United Kingdom; Grand Cayman, Cayman Islands; and Nassau, Bahamas; which are subject to U.S. regulation and regulatory oversight. As of June 30, 2019 and December 31, 2018, USO held cash deposits and investments in Treasuries in the amounts of $1,305,994,667 and $1,604,935,976, respectively, with the custodian and FCM. Some or all of these amounts may be subject to loss should USO’s custodian and/or FCM cease operations.

For derivatives, risks arise from changes in the market value of the contracts. Theoretically, USO is exposed to market risk equal to the value of futures contracts purchased and unlimited liability on such contracts sold short. As both a buyer and a seller of options, USO pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option.

USO’s policy is to continuously monitor its exposure to market and counterparty risk through the use of a variety of financial, position and credit exposure reporting controls and procedures. In addition, USO has a policy of requiring review of the credit standing of each broker or counterparty with which it conducts business.

The financial instruments held by USO are reported in its condensed statements of financial condition at market or fair value, or at carrying amounts that approximate fair value, because of their highly liquid nature and short-term maturity.

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NOTE 6 — FINANCIAL HIGHLIGHTS

The following table presents per share performance data and other supplemental financial data for the six months ended June 30, 2019 and 2018 for the shareholders. This information has been derived from information presented in the condensed financial statements.

    

For the six months ended

    

For the six months ended

 

June 30, 2019

June 30, 2018

 

(Unaudited)

(Unaudited)

 

Per Share Operating Performance:

 

  

 

  

Net asset value, beginning of period

$

9.59

$

12.08

Total income (loss)

 

2.59

 

2.99

Total expenses

 

(0.05)

 

(0.05)

Net increase (decrease) in net asset value

 

2.54

 

2.94

Net asset value, end of period

$

12.13

$

15.02

 

  

 

  

Total Return

 

26.49

%  

 

24.34

%

 

  

 

  

Ratios to Average Net Assets

 

  

 

  

Total income (loss)

 

25.81

%  

 

22.33

%

Management fees*

 

0.45

%  

 

0.45

%

Expenses excluding management fees*

 

0.34

%  

 

0.28

%

Net income (loss)

 

25.42

%  

 

21.97

%

*   Annualized.

Total returns are calculated based on the change in value during the period. An individual shareholder’s total return and ratio may vary from the above total returns and ratios based on the timing of contributions to and withdrawals from USO.

NOTE 7 — FAIR VALUE OF FINANCIAL INSTRUMENTS

USO values its investments in accordance with Accounting Standards Codification 820 – Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement. The changes to past practice resulting from the application of ASC 820 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurement. ASC 820 establishes a fair value hierarchy that distinguishes between: (1) market participant assumptions developed based on market data obtained from sources independent of USO (observable inputs) and (2) USO’s own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs). The three levels defined by the ASC 820 hierarchy are as follows:

Level I – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level II – Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. Level II assets include the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

Level III – Unobservable pricing input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

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In some instances, the inputs used to measure fair value might fall within different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest input level that is significant to the fair value measurement in its entirety.

The following table summarizes the valuation of USO’s securities at June 30, 2019 using the fair value hierarchy:

At June 30, 2019

    

Total

    

Level I

    

Level II

    

Level III

Short-Term Investments

$

1,477,379,684

$

1,477,379,684

$

$

Exchange-Traded Futures Contracts

 

  

 

  

 

  

 

  

United States Contracts

 

118,917,890

 

118,917,890

 

 

During the six months ended June 30, 2019, there were no transfers between Level I and Level II.

The following table summarizes the valuation of USO’s securities at December 31, 2018 using the fair value hierarchy:

At December 31, 2018

    

Total

    

Level I

    

Level II

    

Level III

Short-Term Investments

$

1,334,416,220

$

1,334,416,220

$

$

Exchange-Traded Futures Contracts

 

  

 

  

 

  

 

  

United States Contracts

 

(194,392,958)

 

(194,392,958)

 

 

During the year ended December 31, 2018, there were no transfers between Level I and Level II.

Effective January 1, 2009, USO adopted the provisions of Accounting Standards Codification 815 — Derivatives and Hedging, which require presentation of qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts and gains and losses on derivatives.

Fair Value of Derivative Instruments

Derivatives not

Condensed

Accounted for

Statements of

Fair Value

Fair Value

as Hedging

Financial

At June 30, 

At December 31, 

Instruments

    

Condition Location

    

2019

    

2018

Futures - Commodity Contracts

 

Assets

$

118,917,890

$

(194,392,958)

The Effect of Derivative Instruments on the Condensed Statements of Operations

For the six months ended

For the six months ended

June 30, 2019

June 30, 2018

Change in

Change in

Location of

Realized

Unrealized

Realized

Unrealized

Derivatives not

Gain (Loss)

Gain (Loss)

Gain (Loss) on

Gain (Loss)

Gain (Loss) on

Accounted for

on Derivatives

on Derivatives

Derivatives

on Derivatives

Derivatives

as Hedging

Recognized in

Recognized in

Recognized in

Recognized in

Recognized in

Instruments

    

Income

    

Income

    

Income

    

Income

    

Income

Futures - Commodity Contracts

 

Realized gain (loss) on closed positions

$

69,425,902

$

330,678,000

 

  

 

  

 

  

 

  

 

  

 

Change in unrealized gain (loss) on open positions

 

  

$

313,310,848

 

  

$

85,850,330

NOTE 8 — SUBSEQUENT EVENTS

USO has performed an evaluation of subsequent events through the date the condensed financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the condensed financial statements and the notes thereto of the United States Oil Fund, LP (“USO”) included elsewhere in this quarterly report on Form 10-Q.

Forward-Looking Information

This quarterly report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding the plans and objectives of management for future operations. This information may involve known and unknown risks, uncertainties and other factors that may cause USO’s actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe USO’s future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project,” the negative of these words, other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and USO cannot assure investors that the projections included in these forward-looking statements will come to pass. USO’s actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors.

USO has based the forward-looking statements included in this quarterly report on Form 10-Q on information available to it on the date of this quarterly report on Form 10-Q, and USO assumes no obligation to update any such forward-looking statements. Although USO undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, investors are advised to consult any additional disclosures that USO may make directly to them or through reports that USO files in the future with the U.S. Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Introduction

USO, a Delaware limited partnership, is a commodity pool that issues shares that may be purchased and sold on the NYSE Arca, Inc. (the “NYSE Arca”). The investment objective of USO is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in the price of the futures contract for light, sweet crude oil traded on the New York Mercantile Exchange (the “NYMEX”) that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire (the “Benchmark Oil Futures Contract”), plus interest earned on USO’s collateral holdings, less USO’s expenses. “Near month contract” means the next contract traded on the NYMEX due to expire. “Next month contract” means the first contract traded on the NYMEX due to expire after the near month contract.

USO’s investment objective is not for its NAV or market price of shares to equal, in dollar terms, the spot price of light, sweet crude oil or any particular futures contract based on light, sweet crude oil, nor is USO’s investment objective for the percentage change in its NAV to reflect the percentage change of the price of any particular futures contract as measured over a time period greater than one day. The general partner of USO, United States Commodity Funds LLC (“USCF”), believes that it is not practical to manage the portfolio to achieve such an investment goal when investing in Oil Futures Contracts (as defined below) and Other Oil-Related Investments (as defined below).

USO invests primarily in futures contracts for light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges (collectively, “Oil Futures Contracts”) and to a lesser extent, in order to comply with regulatory requirements or in view of market conditions, other oil-related investments such as cash-settled options on Oil Futures Contracts, forward contracts for oil, cleared swap contracts and over-the-counter (“OTC”) swaps that are based on the price of oil, other petroleum-based fuels, Oil Futures Contracts and indices based on the foregoing (collectively, “Other Oil-Related Investments”). For convenience and unless otherwise specified, Oil Futures Contracts and Other Oil-Related Investments collectively are referred to as “Oil Interests” in this quarterly report on Form 10-Q.

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USCF believes that market arbitrage opportunities will cause daily changes in USO’s share price on the NYSE Arca on a percentage basis to closely track daily changes in USO’s per share NAV on a percentage basis. USCF further believes that daily changes in prices of the Benchmark Oil Futures Contract have historically closely tracked the daily changes in spot prices of light, sweet crude oil. USCF believes that the net effect of these relationships will be that the daily changes in the price of USO’s shares on the NYSE Arca on a percentage basis will closely track the daily changes in the spot price of a barrel of light, sweet crude oil on a percentage basis, plus interest earned on USO’s collateral holdings, less USO’s expenses.

USO seeks to achieve its investment objective by investing so that the average daily percentage change in USO’s NAV for any period of 30 successive valuation days will be within plus/minus ten percent (10%) of the average daily percentage change in the price of the Benchmark Oil Futures Contract over the same period.

Regulatory Disclosure

Accountability Levels, Position Limits and Price Fluctuation Limits. Designated contract markets (“DCMs”), such as the NYMEX and ICE Futures, have established accountability levels and position limits on the maximum net long or net short futures contracts in commodity interests that any person or group of persons under common trading control (other than as a hedge, which an investment by USO is not) may hold, own or control. These levels and position limits apply to the futures contracts that USO invests in to meet its investment objective. In addition to accountability levels and position limits, the NYMEX and ICE Futures also set daily price fluctuation limits on futures contracts. The daily price fluctuation limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day’s settlement price. Once the daily price fluctuation limit has been reached in a particular futures contract, no trades may be made at a price beyond that limit.

The accountability levels for the Benchmark Oil Futures Contract and other Oil Futures Contracts traded on U.S.-based futures exchanges, such as the NYMEX, are not a fixed ceiling, but rather a threshold above which the NYMEX may exercise greater scrutiny and control over an investor’s positions. The current accountability level for investments for any one month in the Benchmark Oil Futures Contract is 10,000 contracts. In addition, the NYMEX imposes an accountability level for all months of 20,000 net futures contracts for light, sweet crude oil. In addition, the ICE Futures maintains the same accountability levels, position limits and monitoring authority for its light, sweet crude oil contract as the NYMEX. If USO and the Related Public Funds exceed these accountability levels for investments in the futures contracts for light, sweet crude oil, the NYMEX and ICE Futures will monitor such exposure and may ask for further information on their activities including the total size of all positions, investment and trading strategy, and the extent of liquidity resources of USO and the Related Public Funds. If deemed necessary by the NYMEX and/or ICE Futures, USO could be ordered to reduce its Crude Oil Futures CL contracts to below the 10,000 single month and/or 20,000 all month accountability level. As of June 30, 2019, USO held 25,004 NYMEX WTI Crude Oil Futures CL contracts and did not hold ICE WTI Crude Oil Futures contracts. USO exceeded accountability levels of the NYMEX during the six months ended June 30, 2019 when it held a maximum of 33,818 Crude Oil Futures CL contracts, on the NYMEX, exceeding the “any” month limit. No action was taken by the NYMEX and USO did not reduce the number of Oil Futures Contracts held as a result. USO did not exceed accountability levels imposed by the ICE Futures during the six months ended June 30, 2019.

Position limits differ from accountability levels in that they represent fixed limits on the maximum number of futures contracts that any person may hold and cannot allow such limits to be exceeded without express CFTC authority to do so. In addition to accountability levels and position limits that may apply at any time, the NYMEX and ICE Futures impose position limits on contracts held in the last few days of trading in the near month contract to expire. It is unlikely that USO will run up against such position limits because USO’s investment strategy is to close out its positions and “roll” from the near month contract to expire to the next month contract during a four-day period beginning two weeks from expiration of the contract. For the six months ended June 30, 2019, USO did not exceed any position limits imposed by the NYMEX and ICE Futures.

The regulation of commodity interest trading in the United States and other countries is an evolving area of the law. The various statements made in this summary are subject to modification by legislative action and changes in the rules and regulations of the SEC, Financial Industry Regulatory Authority (“FINRA”), CFTC, NFA, the futures exchanges, clearing organizations and other regulatory bodies.

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Futures Contracts and Position Limits

The CFTC is generally prohibited by statute from regulating trading on non-U.S. futures exchanges and markets. The CFTC, however, has adopted regulations relating to the marketing of non-U.S. futures contracts in the United States. These regulations permit certain contracts on non-U.S. exchanges to be offered and sold in the United States.

The CFTC has proposed to adopt limits on speculative positions in 25 physical commodity futures and option contracts as well as swaps that are economically equivalent to such contracts in the agriculture, energy and metals markets (the “Position Limit Rules”). The Position Limit Rules would, among other things: identify which contracts are subject to speculative position limits; set thresholds that restrict the size of speculative positions that a person may hold in the spot month, other individual months, and all months combined; create an exemption for positions that constitute bona fide hedging transactions; impose responsibilities on DCMs and swap execution facilities (“SEFs”) to establish position limits or, in some cases, position accountability rules; and apply to both futures and swaps across four relevant venues: OTC, DCMs, SEFs as well as certain non-U.S. located platforms. The CFTC’s first attempt at finalizing the Position Limit Rules, in 2011, was successfully challenged by market participants in 2012 and, since then, the CFTC has re-proposed them and solicited comments from market participants multiple times. At this time, it is unclear how the Position Limit Rules may affect USO, but the effect may be substantial and adverse. By way of example, the Position Limit Rules may negatively impact the ability of USO to meet its investment objectives through limits that may inhibit USCF’s ability to sell additional Creation Baskets of USO.

Until such time as the Position Limit Rules are adopted, the regulatory architecture in effect prior to the adoption of the Position Limit Rules will govern transactions in commodities and related derivatives. Under that system, the CFTC enforces federal limits on speculation in nine agricultural products (e.g., corn, wheat and soy), while futures exchanges establish and enforce position limits and accountability levels for other agricultural products and certain energy products (e.g., oil and natural gas). As a result, USO may be limited with respect to the size of its investments in any commodities subject to these limits.

Under existing and recently adopted CFTC regulations, for the purpose of position limits, a market participant is generally required, subject to certain narrow exceptions, to aggregate all positions for which that participant controls the trading decisions with all positions for which that participant has a 10 percent or greater ownership interest in an account or position, as well as the positions of two or more persons acting pursuant to an express or implied agreement or understanding with that participant (the “Aggregation Rules”). The Aggregation Rules will also apply with respect to the Position Limit Rules if and when such Position Limit Rules are adopted.

OTC Swaps

In October 2015, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the FDIC, the Farm Credit Administration, and the Federal Housing Finance Agency (each an “Agency” and, collectively, the “Agencies”) jointly adopted final rules to establish minimum margin and capital requirements for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants (“Swap Entities”) that are subject to the jurisdiction of one of the Agencies (such entities, “Covered Swap Entities”, and the joint final rules, the “Final Margin Rules”).

The Final Margin Rules will subject non-cleared swaps and non-cleared security-based swaps between Covered Swap Entities and Swap Entities, and between Covered Swap Entities and financial end users that have material swaps exposure (i.e., an average daily aggregate notional of $8 billion or more in non-cleared swaps calculated in accordance with the Final Margin Rules), to a mandatory two-way minimum initial margin requirement. The minimum amount of the initial margin required to be posted or collected would be either the amount calculated by the Covered Swap Entity using a standardized schedule set forth as an appendix to the Final Margin Rules, which provides the gross initial margin (as a percentage of total notional exposure) for certain asset classes, or an internal margin model of the Covered Swap Entity conforming to the requirements of the Final Margin Rules that is approved by the Agency having jurisdiction over the particular Covered Swap Entity. The Final Margin Rules specify the types of collateral that may be posted or collected as initial margin for non-cleared swaps and non-cleared security-based swaps with financial end users (generally cash, certain government, government-sponsored enterprise securities, certain liquid debt, certain equity securities, certain eligible publicly traded debt, and gold); and sets forth haircuts for certain collateral asset classes.

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The Final Margin Rules require minimum variation margin to be exchanged daily for non-cleared swaps and non-cleared security-based swaps between Covered Swap Entities and Swap Entities and between Covered Swap Entities and all financial end-users (without regard to the swaps exposure of the particular financial end-user). The minimum variation margin amount is the daily mark-to-market change in the value of the swap to the Covered Swap Entity, taking into account variation margin previously posted or collected. For non-cleared swaps and security-based swaps between Covered Swap Entities and financial end-users, variation margin may be posted or collected in cash or non-cash collateral that is considered eligible for initial margin purposes. Variation margin is not subject to segregation with an independent, third-party custodian, and may, if permitted by contract, be rehypothecated.

The initial margin requirements of the Final Margin Rules are being phased in over time, and the variation margin requirements of the Final Margin Rules are currently in effect. The Fund is not a Covered Swap Entity under the Final Margin Rules, but it is a financial end-user. Accordingly, the Fund is currently subject to the variation margin requirements of the Final Margin Rules. However, the Fund does not have material swaps exposure and, accordingly, the Fund will not be subject to the initial margin requirements of the Final Margin Rules.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) required the CFTC and the SEC to adopt their own margin rules to apply to a limited number of registered swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants that are not subject to the jurisdiction of one of the Agencies. On December 16, 2015 the CFTC finalized its margin rules, which are substantially the same as the Final Margin Rules and have the same implementation timeline. The SEC adopted margin rules for security-based swap dealers and major security-based swap participants on June 21, 2019. The SEC’s margin rules are generally aligned with the Final Margin Rules and the CFTC’s margin rules, but they differ in a few key respects relating to timing for compliance and the manner in which initial margin must be segregated. USO does not currently engage in security-based swap transactions and, therefore, the SEC’s margin rules are not expected to apply to USO.

Mandatory Trading and Clearing of Swaps

CFTC regulations require that certain swap transactions be executed on organized exchanges or “swap execution facilities” and cleared through regulated clearing organizations (“derivative clearing organizations” (“DCOs”)), if the CFTC mandates the central clearing of a particular class of swap and such swap is “made available to trade” on a swap execution facility. Currently, swap dealers, major swap participants, commodity pools, certain private funds and entities predominantly engaged in activities that are financial in nature are required to execute on a swap execution facility, and clear, certain interest rate swaps and index-based credit default swaps. As a result, if USO enters into an interest rate or index-based credit default swap that is subject to these requirements, such swap will be required to be executed on a swap execution facility and centrally cleared. Mandatory clearing and “made available to trade” determinations with respect to additional types of swaps are expected in the future, and, when finalized, could require USO to electronically execute and centrally clear certain OTC instruments presently entered into and settled on a bi-lateral basis. If a swap is required to be cleared, initial and variation margin requirements are set by the relevant clearing organization, subject to certain regulatory requirements and guidelines. Additional margin may be required and held by USO’s FCM.

Other Requirements for Swaps

In addition to the margin requirements described above, swaps that are not required to be cleared and executed on a SEF but that are executed bilaterally are also subject to various requirements pursuant to CFTC regulations, including, among other things, reporting and recordkeeping requirements and, depending on the status of the counterparties, trading documentation requirements and dispute resolution requirements.

Derivatives Regulations in Non-U.S. Jurisdictions

In addition to U.S. laws and regulations, USO may be subject to non-U.S. derivatives laws and regulations if it engages in futures and/or swap transactions with non-U.S. persons. For example, USO may be impacted by European laws and regulations to the extent that it engages in futures transactions on European exchanges or derivatives transactions with European entities. Other jurisdictions impose requirements applicable to futures and derivatives that are similar to those imposed by the U.S., including position limits, margin, clearing and trade execution requirements.

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Money Market Funds

The SEC adopted amendments to Rule 2a-7 under the Investment Company Act of 1940, as amended ("1940 Act") which became effective in 2016, to reform money market funds (“MMFs”). While the rule applies only to MMFs, it may indirectly affect institutional investors such as USO. A portion of USO’s assets that are not used for margin or collateral in the Futures Contracts currently are invested in government MMFs. USO does not hold any non-government MMFs and does not anticipate investing in any non-government MMFs. However, if USO invests in other types of MMFs besides government MMFs in the future, USO could be negatively impacted by investing in an MMF that does not maintain a stable $1.00 NAV or that has the potential to impose redemption fees and gates (temporary suspension of redemptions).

Although such government money market funds seek to preserve the value of an investment at $1.00 per share, there is no guarantee that they will be able to do so and USO may lose money by investing in a government money market fund. An investment in a government money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation, referred to herein as the FDIC, or any other government agency. The share price of a government money market fund can fall below the $1.00 share price. USO cannot rely on or expect a government money market fund’s adviser or its affiliates to enter into support agreements or take other actions to maintain the government money market fund’s $1.00 share price. The credit quality of a government money market fund’s holdings can change rapidly in certain markets, and the default of a single holding could have an adverse impact on the government money market fund’s share price. Due to fluctuations in interest rates, the market value of securities held by a government money market fund may vary. A government money market fund’s share price can also be negatively affected during periods of high redemption pressures and/or illiquid markets.

Price Movements

Crude oil futures prices were volatile during the six months ended June 30, 2019. The price of the Benchmark Oil Futures Contract started the period at $45.41 per barrel. The high of the period was on April 23, 2019 when the price reached $66.30 per barrel. The low of the period was the starting price for the period, which was $45.41 per barrel. The period ended with the Benchmark Oil Futures Contract at $58.47 per barrel, an increase of approximately 28.76% over the period. USO’s per share NAV began the period at $9.59 and ended the period at $12.13 on June 30, 2019, an increase of approximately 26.49% over the period. USO’s per share NAV reached its high for the period on April 23, 2019 at $13.79 and its low for the period was at the beginning of the period when it was $9.59. The Benchmark Oil Futures Contract prices listed above began with the February 2019 contracts and ended with the August 2019 contracts. The increase of approximately 28.76% on the Benchmark Oil Futures Contract listed above is a hypothetical return only and could not actually be achieved by an investor holding Oil Futures Contracts. An investment in Oil Futures Contracts would need to be rolled forward during the time period described in order to simulate such a result. Furthermore, the change in the nominal price of these differing Oil Futures Contracts, measured from the start of the period to the end of the period, does not represent the actual benchmark results that USO seeks to track, which are more fully described below in the section titled “Tracking USO's Benchmark.”

During the six months ended June 30, 2019, the crude oil futures market was in a state of contango, meaning that the price of the near month crude Oil Futures Contract was lower than the price of the next month crude Oil Futures Contract, or contracts further away from expiration. On days when the market is in backwardation, the price of the near month crude Oil Futures Contract is typically higher than the price of the next month crude Oil Futures Contract or contracts further away from expiration. For a discussion of the impact of backwardation and contango on total returns, see “Term Structure of Crude Oil Prices and the Impact on Total Returns” below.

Valuation of Oil Futures Contracts and the Computation of the Per Share NAV

The per share NAV of USO’s shares is calculated once each NYSE Arca trading day. The per share NAV for a particular trading day is released after 4:00 p.m. New York time. Trading during the core trading session on the NYSE Arca typically closes at 4:00 p.m. New York time. USO’s administrator uses the NYMEX closing price (determined at the earlier of the close of the NYMEX or 2:30 p.m. New York time) for the contracts held on the NYMEX, but calculates or determines the value of all other USO investments, including ICE Futures contracts or other futures contracts, as of the earlier of the close of the NYSE Arca or 4:00 p.m. New York time.

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Results of Operations and the Crude Oil Market

Results of Operations. On April 10, 2006, USO listed its shares on the American Stock Exchange (the “AMEX”) under the ticker symbol “USO.” On that day, USO established its initial offering price at $67.39 per share and issued 200,000 shares to the initial Authorized Participant in exchange for $13,479,000 in cash. As a result of the acquisition of the AMEX by NYSE Euronext, USO’s shares ceased trading on the AMEX and commenced trading on the NYSE Arca on November 25, 2008.

Since its initial offering of 17,000,000 shares, USO has registered nine subsequent offerings of its shares: 30,000,000 shares which were registered with the SEC on October 18, 2006, 50,000,000 shares which were registered with the SEC on January 30, 2007, 30,000,000 shares which were registered with the SEC on December 4, 2007, 100,000,000 shares which were registered with the SEC on February 7, 2008, 100,000,000 shares which were registered with the SEC on September 29, 2008, 300,000,000 shares which were registered with the SEC on January 16, 2009, 1,000,000,000 shares which were registered with the SEC on June 29, 2009, 500,000,000 shares which were registered with the SEC on April 28, 2015, 1,000,000,000 shares which were registered with the SEC on February 29, 2016, and 100,000,000 shares which were registered with the SEC on February 27, 2019. Shares offered by USO in the subsequent offerings were sold for cash at the per share NAV as described in the applicable prospectus. As of June 30, 2019, USO had issued 2,965,000,000 shares, 120,500,000 of which were outstanding. As of June 30, 2019, there were 162,000,000 shares registered but not yet issued.

More shares may have been issued by USO than are outstanding due to the redemption of shares. Unlike funds that are registered under the 1940 Act, shares that have been redeemed by USO cannot be resold by USO. As a result, USO contemplates that additional offerings of its shares will be registered with the SEC in the future in anticipation of additional issuances and redemptions.

As of June 30, 2019, USO had the following Authorized Participants: ABN Amro, BNP Paribas Securities Corp., Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Goldman Sachs & Company, JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas Securities LLC, UBS Securities LLC and Virtu Financial BD LLC.

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For the Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018

    

For the six

    

For the six

 

months ended

 

months ended

 

June 30, 2019

 

June 30, 2018

Average daily total net assets

$

1,554,981,579

$

1,930,876,011

Dividend and interest income earned on Treasuries, cash and/or cash equivalents

$

18,515,435

$

14,413,595

Annualized yield based on average daily total net assets

 

2.40

%  

 

1.51

%

Management fee

$

3,469,952

$

4,308,763

Total fees and other expenses excluding management fees

$

2,632,101

$

2,703,482

Fees and expenses related to the registration or offering of additional shares

$

278,028

$

87,363

Total commissions accrued to brokers

$

1,279,813

$

1,346,629

Total commissions as annualized percentage of average total net assets

 

0.17

%  

 

0.14

%

Commissions accrued as a result of rebalancing

$

1,113,299

$

1,151,426

Percentage of commissions accrued as a result of rebalancing

 

86.99

%  

 

85.50

%

Commissions accrued as a result of creation and redemption activity

$

166,514

$

195,203

Percentage of commissions accrued as a result of creation and redemption activity

 

13.01

%  

 

14.50

%

Portfolio Expenses. USO’s expenses consist of investment management fees, brokerage fees and commissions, certain offering costs, licensing fees, registration fees, the fees and expenses of the independent directors of USCF and expenses relating to tax accounting and reporting requirements. The management fee that USO pays to USCF is calculated as a percentage of the total net assets of USO. The fee is accrued daily and paid monthly.

Average interest rates earned on short-term investments held by USO, including cash, cash equivalents and Treasuries, were higher during the six months ended June 30, 2019, compared to the six months ended June 30, 2018. As a result, the amount of income earned by USO as a percentage of average daily total net assets was higher during the six months ended June 30, 2019, compared to the six months ended June 30, 2018.

The decrease in total fees and other expenses excluding management fees for the six months ended June 30, 2019, compared to the six months ended June 30, 2018 was due primarily to USO’s smaller size as measured by total net assets.

The decrease in total commissions accrued to brokers for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, was due primarily to a lower number of Oil Futures Contracts being held and traded.

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For the Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018

    

For the three

    

For the three

 

months ended

 

months ended

 

June 30, 2019

 

June 30, 2018

Average daily total net assets

$

1,485,425,314

$

1,890,742,284

Dividend and interest income earned on Treasuries, cash and/or cash equivalents

$

8,941,342

$

7,835,213

Annualized yield based on average daily total net assets

 

2.41

%  

 

1.66

%

Management fee

$

1,666,525

$

2,121,257

Total fees and other expenses excluding management fees

$

1,263,763

$

1,270,380

Fees and expenses related to the registration or offering of additional shares

$

150,142

$

5,899

Total commissions accrued to brokers

$

581,879

$

652,149

Total commissions as annualized percentage of average total net assets

 

0.16

%  

 

0.14

%

Commissions accrued as a result of rebalancing

$

501,379

$

576,280

Percentage of commissions accrued as a result of rebalancing

 

86.17

%  

 

88.37

%

Commissions accrued as a result of creation and redemption activity

$

80,500

$

75,869

Percentage of commissions accrued as a result of creation and redemption activity

 

13.83

%  

 

11.63

%

Portfolio Expenses. USO’s expenses consist of investment management fees, brokerage fees and commissions, certain offering costs, licensing fees, registration fees, the fees and expenses of the independent directors of USCF and expenses relating to tax accounting and reporting requirements. The management fee that USO pays to USCF is calculated as a percentage of the total net assets of USO. The fee is accrued daily and paid monthly.

Average interest rates earned on short-term investments held by USO, including cash, cash equivalents and Treasuries, were higher during the three months ended June 30, 2019, compared to the three months ended June 30, 2018. As a result, the amount of income earned by USO as a percentage of average daily total net assets was higher during the three months ended June 30, 2019, compared to the three months ended June 30, 2018.

The decrease in total fees and other expenses excluding management fees for the three months ended June 30, 2019, compared to the three months ended June 30, 2018 was due primarily to USO’s smaller size as measured by total net assets.

The decrease in total commissions accrued to brokers for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, was due primarily to a lower number of futures contracts being held and traded.

Tracking USO’s Benchmark

USCF seeks to manage USO’s portfolio such that changes in its average daily per share NAV, on a percentage basis, closely track the daily changes in the average price of the Benchmark Oil Futures Contract, also on a percentage basis. Specifically, USCF seeks to manage the portfolio such that over any rolling period of 30-valuation days, the average daily change in USO’s per share NAV is within a range of 90% to 110% (0.9 to 1.1) of the average daily change in the price of the Benchmark Oil Futures Contract. As an example, if the average daily movement of the price of the Benchmark Oil Futures Contract for a particular 30-valuation day time period was 0.50% per day, USCF would attempt to manage the portfolio such that the average daily movement of the per share NAV during that same time period fell between 0.45% and 0.55% (i.e., between 0.9 and 1.1 of the benchmark’s results). USO’s portfolio management goals do not include trying to make the nominal price of USO’s per share NAV equal to the nominal price of the current Benchmark Oil Futures Contract or the spot price for light, sweet crude oil. USCF believes that it is not practical to manage the portfolio to achieve such an investment goal when investing in Oil Futures Contracts and Other Oil-Related Investments.

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For the 30-valuation days ended June 30, 2019, the simple average daily change in the Benchmark Oil Futures Contract was (0.232)%, while the simple average daily change in the per share NAV of USO over the same time period was (0.227)%. The average daily difference was 0.005% (or 0.5 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the Benchmark Oil Futures Contract, the average error in daily tracking by the per share NAV was 2.199%, meaning that over this time period USO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal. A significant portion of the level of USO's relative tracking error as a percentage of the benchmark was due to periods of flat price returns.

Since the commencement of the offering of USO’s shares to the public on April 10, 2006 to June 30, 2019, the simple average daily change in the Benchmark Oil Futures Contract was (0.027)%, while the simple average daily change in the per share NAV of USO over the same time period was (0.027)%. The average daily difference was 0.000% (or 0.0 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the Benchmark Oil Futures Contract, the average error in daily tracking by the per share NAV was 0.235%, meaning that over this time period USO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal. The following two graphs demonstrate the correlation between the changes in USO’s NAV and the changes in the Benchmark Oil Futures Contract. The first graph exhibits the daily changes in the last 30 valuation days ended June 30, 2019. The second graph measures monthly changes since June 30, 2014 through June 30, 2019.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Graphic

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*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Graphic

An alternative tracking measurement of the return performance of USO versus the return of its Benchmark Oil Futures Contract can be calculated by comparing the actual return of USO, measured by changes in its per share NAV, versus the expected changes in its per share NAV under the assumption that USO’s returns had been exactly the same as the daily changes in its Benchmark Oil Futures Contract.

For the six months ended June 30, 2019, the actual total return of USO as measured by changes in its per share NAV was 26.49%. This is based on an initial per share NAV of $9.59 as of December 31, 2018 and an ending per share NAV as of June 30, 2019 of $12.13. During this time period, USO made no distributions to its shareholders. However, if USO’s daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Oil Futures Contract, USO would have had an estimated per share NAV of $12.04 as of June 30, 2019, for a total return over the relevant time period of 25.55%. The difference between the actual per share NAV total return of USO of 26.49% and the expected total return based on the Benchmark Oil Futures Contract of 25.55% was an error over the time period of 0.94%, which is to say that USO’s actual total return outperformed its benchmark by that percentage. USO incurs expenses primarily composed of the management fee, brokerage commissions for the buying and selling of futures contracts, and other expenses. The impact of these expenses, offset by interest and dividend income, and net of positive or negative execution, tends to cause daily changes in the per share NAV of USO to track slightly lower or higher than daily changes in the price of the Benchmark Oil Futures Contract.

By comparison, for the six months ended June 30, 2018, the actual total return of USO as measured by changes in its per share NAV was 24.34%. This was based on an initial per share NAV of $12.08 as of December 31, 2017 and an ending per share NAV as of June 30, 2018 of $15.02. During this time period, USO made no distributions to its shareholders. However, if USO’s daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Oil Futures Contract, USO would have had an estimated per share NAV of $14.96 as of June 30, 2018, for a total return over the relevant time period of 23.84%. The difference between the actual per share NAV total return of USO of 24.34% and the expected total return based on the Benchmark Oil Futures Contract of 23.84% was an error over the time period of 0.50%, which is to say that USO’s actual total return outperformed its benchmark by that percentage. USO incurred expenses primarily composed of the management fee, brokerage commissions for the buying and selling of futures contracts, and other expenses. The impact of these expenses, offset by interest and dividend income, and net of positive or negative execution, tended to cause daily changes in the per share NAV of USO to track slightly lower or higher than daily changes in the price of the Benchmark Oil Futures Contract.

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There are currently three factors that have impacted or are most likely to impact USO’s ability to accurately track Benchmark Oil Futures Contract.

First, USO may buy or sell its holdings in the then current Benchmark Oil Futures Contract at a price other than the closing settlement price of that contract on the day during which USO executes the trade. In that case, USO