FromIV
USO ETF
According to Bloomberg, USO owned 25% of the outstanding volume of May WTI oil futures contracts as of last week. With that contract set to expire Tuesday, there is an obvious long squeeze going on here. ETFs like USO are not created to take physical delivery of the oil contracts they hold, so in a long squeeze, the fund’s managers—Bank of New York BK Mellon is USO’s administrator and its general partner is U.S. Commodity Funds, LLC (USCF)—have to dump oil. That has caused the front-month futures price to drop more than 40% today. The June contract has also fallen, to be sure, but by a much lower degree (it is now down $2.37/barrel to $22.36.) That decline might be expected in the throes of the worst pandemic to have hit planet Earth in the past 100 years. There is no economic outcome that could possibly justify single-digit prices for oil, though, and USO‘s implosion has put the benchmark WTI crude oil futures contract on the precipice of that benchmark today.