United States 12 Month Oil Fund, LP Annual Review

This guide unpacks the performance and strategy of the United States 12 Month Oil Fund, LP (USL) for the fiscal year ended December 31, the most recent fiscal year. This summary distills key insights from USL's latest 10-K filing, offering a clear and accessible view for investors.

1. Business Overview Established in 2007, USL operates as a commodity pool designed to track crude oil prices. Its primary objective is to reflect the daily percentage change in the "spot price" of light, sweet crude oil delivered to Cushing, Oklahoma.

Rather than holding physical oil, USL primarily invests in a laddered portfolio of 12 different crude oil futures contracts. This strategy involves holding the nearest-expiring contract and the next 11 months' contracts, weighting each equally. Together, these form the "Benchmark Oil Futures Contracts." USL also earns interest on the cash it holds as collateral for these contracts, net of its operating expenses.

Investors should understand that USL does not aim to perfectly match the dollar price of a barrel of oil or the percentage change of a single oil contract over extended periods. This divergence occurs due to market conditions like contango (where future oil prices exceed current prices) and backwardation (where future prices are lower). These dynamics significantly impact USL's returns compared to a direct investment in crude oil, a factor the fund expects to persist.

USL aims for its average daily percentage change in value over any 30-day period to remain within a 10% range (plus or minus) of its Benchmark Oil Futures Contracts.

2. Management Discussion & Analysis (MD&A) Highlights The prevailing market structure significantly influenced USL's performance during the year. The oil futures market operated in contango for a portion of the year. This condition created an estimated roll yield drag on USL's returns, as the fund sold expiring contracts at lower prices than the new, longer-dated contracts it purchased. Conversely, periods of backwardation also occurred, providing a positive roll yield benefit.

Despite these market dynamics, USL successfully maintained its tracking objective. For much of the year, its average daily percentage change in value over any 30-day period remained within a 10% range (plus or minus) of its Benchmark Oil Futures Contracts.

3. Financial Health As of December 31, the most recent fiscal year, USL held cash and cash equivalents, primarily as collateral for its futures positions. USL operates with no long-term debt. Its liquid assets are sufficient to meet operational needs and collateral requirements, ensuring robust liquidity and financial stability.

4. Risk Factors

• Contango and Backwardation: These market conditions remain inherent and significant risks. Prolonged periods of contango can consistently erode returns as the fund "rolls" its futures positions.
• Tracking Error: Even with active management, USL's performance may deviate from its benchmark due to operational costs, market volatility, and the specific mechanics of futures trading.
• Market Volatility: Crude oil prices are highly volatile, influenced by global supply and demand, geopolitical events, economic conditions, and speculative trading.
• Regulatory and Legislative Changes: Changes in commodity market regulations, tax laws, or other legislative actions could impact the fund's operations or investment strategy.
• Counterparty Risk: USL faces the risk that its futures brokers or other counterparties may fail to meet their obligations.
• Liquidity Risk: Although generally liquid, extreme market conditions could affect the liquidity of futures contracts, potentially impacting the fund's ability to execute trades efficiently.

5. Competitive Position United States Commodity Funds LLC (USCF) manages USL. USCF is a wholly-owned subsidiary of USCF Investments, Inc., part of the publicly traded The Marygold Companies, Inc. (MGLD). As a prominent player in the commodity ETF space, USCF manages a suite of funds, including the United States Oil Fund (USO) and United States Natural Gas Fund (UNG). This demonstrates significant expertise and market presence in commodity-linked investment products. Nicholas Gerber, his family, and other shareholders hold a majority ownership in Marygold.

6. Future Outlook Management anticipates that contango and backwardation dynamics will continue to primarily determine USL's performance relative to direct crude oil exposure. The fund will continue to monitor global oil supply and demand fundamentals, geopolitical developments, and regulatory changes that could impact the crude oil market and its investment strategy. USL may also utilize "Other Oil-Related Investments," such as options, swaps, or forward contracts. These tools offer flexibility in its investment approach, allowing the fund to manage exposure, enhance returns, or comply with regulatory requirements.

This overview aims to help you understand USL's unique approach to oil exposure and the key factors that influence its performance, so you can make an informed investment decision.