Disclosure
Description of United States Oil Fund, LP and the General Risks of the Offering
An investment in the Units issued by the United States Oil Fund® LP (USO) involves risks. Some of the risks you may face are summarized below. A more extensive discussion of the risks associated with investing directly or indirectly in USO, appears in the Prospectus preceding or accompanying this Disclosure document.
- Unlike mutual funds, commodity pools or other investment pools that manage their investments in an attempt to realize income and gains and distribute such income and gains to their investors, USO generally does not distribute cash to limited partners or other unitholders. You should not invest in USO if you will need cash distributions from USO to pay taxes on your share of income and gains of USO, if any, or for any other reason.
- You may not be able to effectively use USO as a way to hedge against crude oil-related losses or as a way to indirectly invest in crude oil if the following were to occur:
- Changes in USO's NAV may not correlate with changes in the price of the Benchmark Oil Futures Contracts;
- The Benchmark Oil Futures Contract may not correlate with the spot price of light, sweet crude oil and this could cause changes in the price of the units to substantially vary from the changes in the spot price of light, sweet crude oil;
- Accountability levels, position limits, and daily price fluctuation limits set by the exchanges have the potential to cause a tracking error, which could cause the price of units to substantially vary from the price of the Benchmark Oil Futures Contracts.
- The price relationship between the near month contract to expire and the next month contract to expire that compose the Benchmark Oil Futures Contract will vary and may impact both the total return over time of USOF's NAV, as well as the degree to which its total return tracks other crude oil price indices' total returns. In cases in which the near month contract's price is lower than the next month contract's price (a situation known as "contango" in the futures markets), then absent the impact of the overall movement in crude oil prices the value of the benchmark contract would tend to decline as it approaches expiration. In cases in which the near month contract's price is higher than the next month contract's price (a situation known as "backwardation" in the futures markets), then absent the impact of the overall movement in crude oil prices the value of the benchmark contract would tend to rise as it approaches expiration.
- Investing in USO for purposes of hedging may subject you to risks, including the possibility of losing the benefit of favorable market movements.
- The design of USO's Benchmark Oil Futures Contract is such that every month it begins by using the near month contract to expire until the near month contract is within two weeks of expiration, when, over a four day period, it transitions to the next month contract to expire as its benchmark contract and keeps that contract as its benchmark until it becomes the near month contract and close to expiration. In the event of a crude oil futures market where near month contracts trade at a higher price than next month to expire contracts, a situation described as "backwardation" in the futures market, then absent the impact of the overall movement in crude oil prices the value of the benchmark contract would tend to rise as it approaches expiration. As a result, the total return of the Benchmark Oil Futures Contract would tend to track higher. Conversely, in the event of a crude oil futures market where near month contracts trade at a lower price than next month contracts, a situation described as "contango" in the futures market, then absent the impact of the overall movement in crude oil prices the value of the benchmark contract would tend to decline as it approaches expiration. As a result, the total return of the Benchmark Oil Futures Contract would tend to track lower. When compared to total return of other price indices, such as the spot price of crude oil, the impact of backwardation and contango may lead the total return of USO's NAV to vary significantly. In the event of a prolonged period of contango, and absent the impact of rising or falling oil prices, this could have a significant negative impact on USO's NAV and total return.
- The structure and operation of USO may involve conflicts of interest. For example, a conflict may arise because the General Partner and its principals and affiliates may trade for themselves. In addition, the General Partner has sole current authority to manage the investments and operations, which may create a conflict with the unitholders' best interests. The General Partner may also have a conflict to the extent that its trading decisions may be influenced by the effect they would have on the United States 12 Month Oil Fund, LP, the United States Short Oil Fund, LP, the United States Brent Oil Fund, LP, the United States Natural Gas Fund, LP, the United States 12 Month Natural Gas Fund, LP, the United States Gasoline Fund, LP, the United States Heating Oil Fund, LP, the United States Commodity Index Fund, the United States Copper Index Fund and the United States Agriculture Index Fund, the other commodity pools that it manages, or any other commodity pool the General Partner may form and manage in the future.
- You will have no rights to participate in the management of USO and will have to rely on the duties and judgment of the General Partner to manage USO.
- USO pays fees and expenses that are incurred regardless of whether it is profitable.
- If the General Partner causes or permits USO to become leveraged, you could lose all or substantially all of your investment if USO's trading positions suddenly turn unprofitable.
- USO may also invest in Other Crude Oil-Related Investments, many of which are negotiated contracts that are not as liquid as Oil Futures Contracts and expose USO to credit risk that its counterparty may not be able to satisfy its obligations to USO.