United States Oil Fund, LP Annual Review: A Look Back at 2025 Performance and Outlook

This annual review provides a clear, jargon-free summary of the United States Oil Fund, LP's (USO) performance for the fiscal year ending December 31, 2025. We'll explore USO's key financials, investment strategy, and what these mean for you as an investor.

Business Overview: What is USO and Its Investment Strategy?

USO, which began trading on NYSE Arca on April 10, 2006, tracks the daily price movements of light, sweet crude oil (West Texas Intermediate, or WTI) delivered to Cushing, Oklahoma. It primarily invests in a specific short-term WTI crude oil futures contract, known as its "Benchmark Oil Futures Contract." The fund also holds cash equivalents, earns interest, and covers its operating expenses.

Daily Tracking Goal: USO aims for its daily share value to mirror the daily percentage change of its Benchmark Contract. Over any 30-day period, the fund targets an average daily change within 10% of the Benchmark's.

Crucial Distinction (Long-Term Performance): Crucially, USO does not aim to perfectly replicate the spot price of crude oil or to track oil prices over extended periods. This divergence stems from the unique mechanics of futures markets, particularly "contango" and "backwardation":

• Contango: Occurs when future oil prices are higher than current prices. If USO "rolls" its expiring contracts into more expensive future contracts, this can erode returns over time.
• Backwardation: The opposite: future oil prices are lower than current prices. Rolling contracts into cheaper future contracts can potentially boost returns.

In 2025, the WTI futures curve experienced periods of moderate contango. This market structure contributed to a tracking difference between USO's performance and the spot price of crude oil because the fund continuously rolled its positions.

Financial Performance: Key Financials for 2025

USO's performance highlights for the fiscal year ending December 31, 2025:

• Net Asset Value (NAV) Performance: USO's Net Asset Value (NAV) returned approximately +12.5%.
• Benchmark Performance: The Benchmark Oil Futures Contract, in comparison, returned +14.2% over the same period.
• Tracking Difference: This led to a -1.7% tracking difference for the year, primarily due to contango effects and operating expenses. The fund generally met its daily 10% alignment target.
• Assets Under Management (AUM): As of December 31, 2025, USO's total Assets Under Management (AUM) reached approximately $1.18 billion, reflecting net outflows and market performance.
• Operating Expenses: Operating expenses totaled $12.5 million, resulting in an expense ratio of approximately 1.06% of average AUM. This figure covers management fees, administrative costs, and other operational charges.
• Net Income/Loss: The fund reported a net loss of $5.2 million, primarily because the tracking difference and operating expenses exceeded interest income.
• Shares Outstanding: Approximately 14.5 million shares were outstanding as of December 31, 2025.

Risk Factors: Key Risks to Consider

Beyond general market volatility, investing in USO involves specific risks:

• Tracking Error: While USO aims for daily alignment, various factors can cause its performance to diverge from the Benchmark over time, including contango/backwardation, market volatility, and operational costs.
• Futures Market Volatility: Oil futures prices are highly sensitive to global supply and demand, geopolitical events, and economic conditions, which can lead to significant price swings.
• Counterparty Risk: USO relies on financial institutions to execute its futures contracts. Despite diversification, a risk of counterparty default always exists.
• Regulatory Changes: Changes in commodity market regulations could impact USO's operations or investment strategy.
• Tax Implications: Investing in commodity pools like USO can have different tax implications than traditional equity investments. This often involves K-1 forms and potential "unrelated business taxable income" (UBTI) for certain investors. Always consult a tax advisor.
• Liquidity Risk: While generally liquid, extreme market conditions could affect the ease of buying or selling USO shares or its underlying futures contracts.

Management Discussion and Analysis (MD&A) Highlights

Management's discussion for 2025 emphasizes how market structure and operational factors influenced the fund's financial condition and results. The $5.2 million net loss primarily stemmed from the negative impact of contango in the WTI futures market and the fund's operating expenses, which together exceeded interest income from cash equivalents. The -1.7% tracking difference relative to the Benchmark Oil Futures Contract directly resulted from continuously rolling futures contracts in a contango environment. This meant replacing expiring contracts with higher-priced future contracts, which eroded returns.

Year-end 2025 Assets Under Management (AUM) reflected both the market performance of underlying futures contracts and net capital outflows from the fund throughout the year. Management continuously monitors the fund's exposure and adjusts futures positions to align with its stated investment strategy and daily tracking objective. The fund's robust creation and redemption mechanism supports its ability to meet obligations and manage operations, efficiently handling capital inflows and outflows. The fund consistently applies critical accounting policies, particularly the fair value measurement of futures contracts, to ensure accurate financial reporting.

Financial Health: Debt, Cash, and Liquidity

As a commodity pool, USO's financial health is unique. Its primary assets include a portfolio of WTI crude oil futures contracts and significant cash and cash equivalents. These holdings collateralize its futures positions and provide operational liquidity.

USO does not typically incur long-term debt. Authorized participants fund its operations by continuously creating new share baskets in exchange for cash. Similarly, the redemption process manages liquidity for redemptions, allowing authorized participants to redeem shares for cash. This creation/redemption mechanism ensures the fund maintains adequate liquidity to meet obligations and effectively manage its portfolio. Therefore, the fund's capital resources directly tie to its continuous ability to issue and redeem shares.

Future Outlook and Strategy

USO's future outlook directly links to the dynamics of the global crude oil market and the WTI futures curve's structure. Its strategy remains consistent: to track the daily percentage changes in its Benchmark Oil Futures Contract's price.

Management anticipates the fund will continue to face influence from factors like global crude oil supply and demand, geopolitical developments, economic growth forecasts, and the ongoing market structure of contango or backwardation. The fund will continue to execute its established rolling strategy for futures contracts. The fund will also closely monitor regulatory developments in commodity markets for any potential impact on its operations or investment methodology. The fund's objective is to maintain its daily tracking efficacy while managing operational costs.

Competitive Position

USO holds a prominent position among investment products offering crude oil exposure. As one of the largest and most established commodity pools focused on WTI crude oil futures, it benefits from significant liquidity and a recognized brand.

The competitive landscape includes other exchange-traded products (ETPs) that track crude oil prices, such as other commodity pools, exchange-traded notes (ETNs), and actively managed funds. USO differentiates itself through its specific, transparent, and rules-based investment methodology, which focuses on the nearest-month WTI futures contract (or the next month if the front month is too close to expiration). Its long operational history and substantial Assets Under Management contribute to its market presence and ease of trading for investors seeking direct, albeit short-term, crude oil price exposure.

Conclusion

USO offers a convenient way to gain exposure to crude oil price movements, especially for short-term trading strategies. However, investors must understand its unique structure, the impact of futures market dynamics like contango, and the potential for long-term tracking divergence from spot oil prices. In 2025, the fund delivered a positive return, though it slightly underperformed its benchmark due to market structure and operational costs. Understanding these nuances is crucial for making informed investment decisions.