A $3 billion oil ETF is being forced to revamp its portfolio thanks to oil's historic plunge below $0
- US Oil Fund, one of the largest oil ETFs, has outlined a plan to revamp its portfolio amid the historic plunge in crude prices.
- Forced to make a radical change to its portfolio, the fund cited "extraordinary market conditions" and a "super contago" as reasons that led to its decision to make changes.
- The ETF plans to transfer money from its West Texas Intermediate oil futures contract set to expire in June to later-dated contracts and "other permitted investments".
- Watch USO trade live here.
United States Oil Fund (USO), a popular exchange-traded oil fund, plans to revamp its portfolio after the commodity witnessed a historic price decline and remained stuck at record lows.
Below $0 crude oil prices would have an unprecedented impact for investors of the exchange-traded product - which is a regularly priced security that trades on exchanges similar to stocks. Oil demand has evaporated in recent weeks due to coronavirus-related global lockdowns, with the US crude oil price hitting its lowest-ever level.
In a filing late in the trading day Tuesday, USO cited "extraordinary market conditions" and a "super contango" — when the futures price is higher than the spot price — that led to a decision to revamp its portfolio.
With around $3 billion in assets, USO plans to transfer money out of its crude oil futures contracts that will expire in June, to later-dated contracts and possibly "other permitted investments" based on energy products.
United States Commodity Funds (USCF) — which runs the USO fund — said that its anticipation of market conditions could lead it to take on "other oil-related investments" that allow for greater liquidity or to participate in transactions with "more favorable pricing."
USCF did not immediately respond to a request for comment from Markets Insider.
Before the move to revamp its portfolio, USO's prospectus laid out investment objectives that state it invests primarily in futures contracts for light, sweet crude oil, diesel-heating oil, gasoline, natural gas and other petroleum-based fuels traded on the NYMEX and ICE exchanges.
USO's trading paused early Tuesday after its shares plunged as much as 20% due to continued pressure from the oil market.
USCF announced in a regulatory filing it issued all of its currently remaining registered shares and required the Securities and Exchange Commission's approval to register 4 billion more.
Once USO's trading resumed, it slid further before paring some losses.
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