By April Joyner
NEW YORK (Reuters) – The United States Oil Fund LP, the largest U.S. oil-focused exchange-traded product, stated on Friday in a regulatory filing https://www.sec.gov/ix?doc=/Archives/edgar/data/1327068/000117120020000430/i20391_uso-8k.htm that it has gained approval to resume offering new shares.
USO’s registration of 1 billion new shares has been declared effective by the Securities and Exchange Commission, the fund said, and hence it can once again allow authorized purchasers, or market makers for exchange-traded products, to issue new USO shares.
USO shares were little changed on Friday at $26.35.
On April 21, the fund stated that it had issued all of its registered shares and was thus suspending the creation of new shares. As a result of the suspension, there was a significant discrepancy between the fund’s trading price and the performance of the oil futures it held.
Following a sharp plunge in oil, in which expiring May U.S. crude contracts traded at negative prices, USO took in heavy inflows from investors betting on a rebound.
Oil prices have in fact risen substantially since then. Even with losses this week, U.S. crude was trading near $36 a barrel on Friday, about $10 higher than a month ago.
Even so, because later-dated oil futures are currently trading at higher prices than nearer-dated futures – a phenomenon called contango – USO’s structure requires it to sell cheaper futures to buy more expensive ones as nearer-dated contracts expire. As a result, investors who hold USO could wind up with losses.
(Reporting by April Joyner; Editing by Nick Zieminski)
