Liquid Alternatives: World’s Largest Oil ETF Halts Trading on Tuesday

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The USO Fund LP has halted trading. Yesterday, the fund was largely responsible for pushing WTI May crude prices into negative territory. Crude prices effectively collapsed by 300%.

The United States Oil Fund LP (NYSEARCA: USO) said in a regulatory filing today that it would suspend buying of crude. This action suspends USO Authorized Purchasers from buying new creating new baskets. The WTI May contract expires today.

Ugly Day for the USO Fund LP

Last week, the USO fund owned 25% of all outstanding shares of the Many 2020 WTI oil futures, according to Bloomberg. Owners of this contract either had to take physical delivery of crude in Cushing, Oklahoma later this month or sell those contracts. The ETF – which really just trades speculative paper barrel contracts – isn’t in the business of taking physical delivery. Even if it wanted to take delivery, storage in Cushing is effectively tapped out. In a situation where oil prices are negative, producers are effectively paying traders to take crude off their hands at the delivery point. This was the first time that this has happened in the U.S. oil markets.

Yesterday, hedge fund manager and oil trader Pierre Andurand warned that the ETF would suffer massive losses. As it rolled over contracts, the USO fund lost 20% before market open Tuesday.

“I think the CME might have no other choice but to close out the ETFs positions. It cannot take the risk to have negative prices before the roll and be on the hook. This shock is real. Be very careful out there. We are going to hear about crazy losses in the days and weeks to come,” Andurand said on Twitter.

Recent: Liquid Alternatives: Oil Makes History Pricing Below Zero; An ETF for the (Eventual) Rebound

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