Management’s Discussion and Analysis of Financial Condition and Results of Operations.
−Removed: The following discussion should be read in conjunction with the condensed financial statements and the notes thereto of United States Gasoline Fund, LP (“UGA”) included elsewhere in this annual report on Form 10-K.
+Added: The following discussion should be read in conjunction with the financial statements and the notes thereto of the United States Gasoline Fund, LP (“UGA”) included elsewhere in this annual report on Form 10-K.
Forward-Looking Information
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and foreign currencies;
−Removed: significant market volatility in the natural gas markets and futures markets attributable to the COVID-19 pandemic, uncertainties associated with the impact from the coronavirus (COVID-19) pandemic, including:
+Added: market volatility in the oil markets and futures markets, in part attributable to the COVID-19 pandemic, uncertainties associated with the impact from the coronavirus (COVID-19) pandemic, including:
its impact on the global and U.S.
capital markets and the global and U.S.
−Removed: economy, the length and duration of the COVID-19 outbreak in the United States as well as worldwide and the magnitude of the economic impact of that outbreak, the effect of the COVID-19 pandemic on UGA’s business prospects, including its ability to achieve its objectives, and the effect of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business.
+Added: economy, the length and duration of the COVID-19 outbreak in the United States as well as worldwide and the magnitude of the economic impact of that outbreak, the effect of the COVID-19 pandemic on UGA’s business prospects, including its ability to achieve its objectives, and the effect of the disruptions caused by the COVID-19 pandemic on our
+Added: ability to continue to effectively manage our business.
Forward-looking statements, which involve assumptions and describe UGA’s future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project,” the negative of these words, other variations on these words or comparable terminology.
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UGA invests primarily in futures contracts for gasoline, crude oil, natural gas, heating oil and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other U.S.
−Removed: and foreign exchanges (collectively, “Futures Contracts”) and to a lesser extent, in order to comply with regulatory requirements or in view of market conditions, other gasoline-related investments such as cash-settled options
−Removed: on Futures Contracts, forward contracts for gasoline, cleared swap contracts and over-the-counter (“OTC”) swaps that are based on the price of gasoline, crude oil and other petroleum-based fuels, Futures Contracts and indices based on the foregoing (collectively, “Other Gasoline-Related Investments”).
+Added: and foreign exchanges (collectively, “Futures Contracts”) and to a lesser extent, in order to comply with regulatory requirements or in view of market conditions, other gasoline-related investments such as cash-settled options on Futures Contracts, forward contracts for gasoline, cleared swap contracts and over-the-counter (“OTC”) swaps that are based on the price of gasoline, crude oil and other petroleum-based fuels, Futures Contracts and indices based on the foregoing (collectively, “Other Gasoline-Related Investments”).
For convenience and unless otherwise specified, Futures Contracts and Other Gasoline-Related Investments collectively are referred to as “Gasoline Interests” in this annual report on Form 10-K.
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UGA seeks to achieve its investment objective by investing so that the average daily percentage change in UGA’s NAV for any period of 30 successive valuation days will be within plus/minus ten percent (10%) of the average daily percentage change in the price of the Benchmark Futures Contract over the same period.
−Removed: On any valuation day, the Benchmark Futures Contract is the near month futures contract for gasoline traded on the NYMEX unless the near month contract is within two weeks of expiration in which case the Benchmark Futures Contract is the next month contract for gasoline traded on the NYMEX.
+Added: On any valuation day, the Benchmark Futures Contract is the near month futures contract for gasoline traded on the NYMEX unless the near month contract is within two weeks of expiration in which case the Benchmark Futures Contract is the next month contract for
+Added: gasoline traded on the NYMEX.
The regulation of commodity interest trading in the United States and other countries is an evolving area of the law.
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For the fiscal year ended December 31, 2021, UGA did not exceed any position limits imposed by the NYMEX and ICE Futures.
−Removed: The regulation of commodity interest trading in the United States and other countries is an evolving area of the law.
−Removed: The various statements made in this summary are subject to modification by legislative action and changes in the rules and regulations of the SEC, FINRA, CFTC, NFA, the futures exchanges, clearing organizations and other regulatory bodies.
Futures Contracts and Position Limits
−Removed: The CFTC is generally prohibited by statute from regulating trading on non-U.S.
−Removed: futures exchanges and markets.
−Removed: The CFTC, however, has adopted regulations relating to the marketing of non-U.S.
−Removed: futures contracts in the United States.
−Removed: These regulations permit certain contracts on non-U.S.
−Removed: exchanges to be offered and sold in the United States.
On October 15, 2020, the CFTC approved the Position Limits Rule.
The Position Limits Rule establishes federal position limits for 25 core referenced futures contracts (comprised of agricultural, energy and metals futures contracts), futures and options linked to the core referenced futures contracts, and swaps that are economically equivalent to the core referenced futures contracts.
−Removed: The Position Limits Rule sets position limits for the spot month and non-spot month;
−Removed: however, the non-spot month limits only apply in respect of the agricultural futures contracts that are currently subject to position limits under Part 150 of the CFTC regulations (the “legacy agricultural contracts”).
−Removed: With respect to regulatory oversight, the Position Limits Rule delegates authority to designated contract markets and swap execution facilities to oversee certain aspects of the position limits framework.
−Removed: In addition to setting the federal position limits, the Position Limits Rule also provides several exemptions from such position limits, including an expanded list of enumerated bona fide hedge exemptions and certain spread exemptions.
−Removed: Further, the Position Limits Rule sets forth two alternative processes for pursuing an exemption for non-enumerated hedge positions.
−Removed: Other than for the legacy agricultural contracts, compliance with the limits imposed by the Position Limits Rule will not be required until 2022, except that economically equivalent swaps need not comply with the Position Limits Rule until 2023.
−Removed: The Benchmark Futures Contract will be subject to position limits under the Position Limits Rule, and UNG’s trading does not qualify as an enumerated bona fide hedge.
−Removed: Accordingly, the Position Limits Rule could negatively impact the ability of UNG to meet its investment objective by inhibiting USCF’s ability to effectively invest the proceeds from sales of Creation Baskets of UNG in particular amounts and types of its permitted investments.
−Removed: Until such time as compliance with the Position Limits Rule is required, the regulatory architecture in effect prior to the adoption of the Position Limit Rules will govern transactions in commodities and related derivatives.
−Removed: Under that system, the CFTC enforces federal limits on speculation in the nine legacy agricultural contracts, while futures exchanges establish and enforce position limits and accountability levels for other agricultural products and certain energy products (e.g., oil and natural gas).
−Removed: Under existing CFTC regulations and the Position Limits Rule, for the purpose of position limits, a market participant is generally required, subject to certain narrow exceptions, to aggregate all positions for which that participant controls the trading decisions with all positions for which that participant has a 10% or greater ownership interest in an account or position, as well as the positions of two or more persons acting pursuant to an express or implied agreement or understanding with that market participant (the “Aggregation Rules”).
−Removed: In October 2015, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the FDIC, the Farm Credit Administration, and the Federal Housing Finance Agency (each an “Agency” and, collectively, the “Agencies”) jointly adopted final rules to establish minimum margin and capital requirements for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants (“Swap Entities”) that are subject to the jurisdiction of one of the Agencies (such entities, “Covered Swap Entities”, and the joint final rules, the “Final Margin Rules”).
+Added: The Benchmark Futures Contract will be subject to position limits under the Position Limits Rule, and UGA’s trading does not qualify for an exemption therefrom.
+Added: Accordingly, the Position Limits Rule could negatively impact the ability of UGA to meet its investment objective by inhibiting USCF’s ability to effectively invest the proceeds from sales of Creation Baskets of UGA in particular amounts and types of its permitted investments.
+Added: In October 2015, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the FDIC, the Farm Credit Administration, and the Federal Housing Finance Agency (each an “Agency” and, collectively, the “Agencies”) jointly adopted final rules to establish minimum margin and capital requirements for registered swap dealers, major swap participants, security-
+Added: based swap dealers, and major security-based swap participants (“Swap Entities”) that are subject to the jurisdiction of one of the Agencies (such entities, “Covered Swap Entities”, and the joint final rules, the “Final Margin Rules”).
The Final Margin Rules will subject non-cleared swaps and non-cleared security-based swaps between Covered Swap Entities and Swap Entities, and between Covered Swap Entities and financial end users that have material swaps exposure (i.e., an average daily aggregate notional of $8 billion or more in non-cleared swaps calculated in accordance with the Final Margin Rules), to a mandatory two-way minimum initial margin requirement.
The minimum amount of the initial margin required to be posted or collected would be either the amount calculated by the Covered Swap Entity using a standardized schedule set forth as an appendix to the Final Margin Rules, which provides the gross initial margin (as a percentage of total notional exposure) for certain asset classes, or an internal margin model of the Covered Swap Entity conforming to the requirements of the Final Margin Rules that is approved by the Agency having jurisdiction over the particular Covered Swap Entity.
−Removed: The Final Margin Rules specify the types of collateral that may be posted or collected as initial
−Removed: margin for non-cleared swaps and non-cleared security-based swaps with financial end users (generally cash, certain government, government-sponsored enterprise securities, certain liquid debt, certain equity securities, certain eligible publicly traded debt, and gold);
+Added: The Final Margin Rules specify the types of collateral that may be posted or collected as initial margin for non-cleared swaps and non-cleared security-based swaps with financial end users (generally cash, certain government, government-sponsored enterprise securities, certain liquid debt, certain equity securities, certain eligible publicly traded debt, and gold);
and sets forth haircuts for certain collateral asset classes.
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As a result, if UGA enters into an interest rate or index-based credit default swap that is subject to these requirements, such swap will be required to be executed on a swap execution facility and centrally cleared.
−Removed: Mandatory clearing and “made available to trade” determinations with respect to additional types of swaps are expected in the future, and, when finalized, could require UGA to electronically execute and centrally clear certain OTC instruments presently entered into and settled on a bi-lateral basis.
+Added: Mandatory clearing and “made available to trade” determinations with respect to additional types of swaps may be issued in the future, and, when finalized, could require UGA to electronically execute and centrally clear certain OTC instruments presently entered into and settled on a bi-lateral basis.
If a swap is required to be cleared, initial and variation margin requirements are set by the relevant clearing organization, subject to certain regulatory requirements and guidelines.
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Other jurisdictions impose requirements applicable to futures and derivatives that are similar to those imposed by the U.S., including position limits, margin, clearing and trade execution requirements.
+Added: The CFTC is generally prohibited by statute from regulating trading on non-U.S.
+Added: futures exchanges and markets.
+Added: The CFTC, however, has adopted regulations relating to the marketing of non-U.S.
+Added: futures contracts in the United States.
+Added: These regulations permit certain contracts on non-U.S.
+Added: exchanges to be offered and sold in the United States.
Money Market Funds
−Removed: The SEC adopted amendments to Rule 2a-7 under the Investment Company Act of 1940, as amended ("1940 Act"), which became effective in 2016, to reform money market funds (“MMFs”).
+Added: The SEC adopted amendments to Rule 2a-7 under the Investment Company Act of 1940, as amended (“1940 Act”), which became effective in 2016, to reform money market funds (“MMFs”).
While the rule applies only to MMFs, it may indirectly affect institutional investors such as UGA.
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However, if UGA invests in other types of MMFs besides government MMFs in the future, UGA could be negatively impacted by investing in an MMF that does not maintain a stable $1.00 NAV or that has the potential to impose redemption fees and gates (temporary suspension of redemptions).
−Removed: Although such government money market funds seek to preserve the value of an investment at $1.00 per share, there is no guarantee that they will be able to do so and UGA may lose money by investing in a government money market fund.
−Removed: An investment in a government money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation, referred to herein as the FDIC, or any other government agency.
−Removed: The share price of a government money market fund can fall below the $1.00 share price.
−Removed: UGA cannot rely on or expect a government money market fund’s adviser or its affiliates to enter into support agreements or take other actions to maintain the government money market fund’s $1.00 share price.
−Removed: The credit quality of a government money market fund’s holdings can change rapidly in certain markets, and the default of a single holding could have an adverse impact on the government money market fund’s share price.
−Removed: Due to fluctuations in interest rates, the market value of securities held by a government money market fund may vary.
−Removed: A government money market fund’s share price can also be negatively affected during periods of high redemption pressures and/or illiquid markets.
+Added: Although such government MMFs seek to preserve the value of an investment at $1.00 per share, there is no guarantee that they will be able to do so and UGA may lose money by investing in a government MMF.
+Added: An investment in a government MMF is not insured or guaranteed by the Federal Deposit Insurance Corporation (the “FDIC”) or any other government agency.
+Added: The share price of a government MMF can fall below the $1.00 share price.
+Added: UGA cannot rely on or expect a government MMF’s adviser or its affiliates to enter into support agreements or take other actions to maintain the government MMF’s $1.00 share price.
+Added: The credit quality of a government MMF’s holdings can change rapidly in certain markets, and the default of a single holding could have an adverse impact on the government MMF’s share price.
+Added: Due to fluctuations in interest rates, the market value of securities held by a government MMF may vary.
+Added: A government MMF’s share price can also be negatively affected during periods of high redemption pressures and/or illiquid markets.
Price Movements
−Removed: Gasoline futures prices were volatile during the year ended December 31, 2020 and exhibited moderate daily swings along with an uneven upward trend during the year.
+Added: Gasoline futures prices were volatile during the year ended December 31, 2021.
The price of the Benchmark Futures Contract started the year at $1.4101 per gallon.
−Removed: The high of the year was on February 20, 2020 when the price reached $1.7845 per gallon.
−Removed: The low for the year was on March 23, 2020, which was $.4947 per gallon.
−Removed: The year ended with the Benchmark Futures Contract at $1.4101 per gallon, a decrease of approximately (16.59)% over the year (investors are cautioned that these represent prices for gasoline on a wholesale basis and should not be directly compared to retail prices at a gasoline service station).
−Removed: UGA’s per share NAV began the year at $32.31 and ended the year at $24.29 on December 31, 2020, a decrease of approximate (24.82)% over the year.
+Added: The high of the year was on October 15, 2021when the price reached $2.4864 per gallon.
+Added: The low for the year was on January 4, 2021, which was $1.3729 per gallon.
+Added: The year ended with the Benchmark Futures Contract at $2.2246 per gallon, an increase of approximately 57.76% over the year (investors are cautioned that these represent prices for gasoline on a wholesale basis and should not be directly compared to retail prices at a gasoline service station).
+Added: UGA’s per share NAV began the year at $24.29 and ended the year at $41.04 on December 31, 2021, an increase of approximate 68.96% over the year.
The Benchmark Futures Contract prices listed above began with the February 2021contracts and ended with the February 2022 contracts.
−Removed: The decrease of approximately (16.59)% on the Benchmark Futures Contract listed above is a hypothetical return only and could not actually be achieved by an investor holding Futures Contracts.
+Added: The increase of approximately 57.76% on the Benchmark Futures Contract listed above is a hypothetical return only and could not actually be achieved by an investor holding Futures Contracts.
An investment in Futures Contracts would need to be rolled forward during the time period described in order to simulate such a result.
Furthermore, the change in the nominal price of these differing Futures Contracts, measured from the start of the year to the end of the year, does not represent the actual benchmark results that UGA seeks to track, which are more fully described below in the section titled “ Tracking UGA’s Benchmark .”
−Removed: During the year ended December 31, 2020, the gasoline futures market began the year in contango and flipped to backwardation in the spring.
−Removed: During periods of contango, the price of the near month gasoline Futures Contract is lower than the price of the next month gasoline Futures Contract or contracts further away from expiration.
−Removed: On days when the market is in backwardation, the price of the near month gasoline Futures Contract is higher than the price of the next month gasoline Futures Contract, or contracts further away from expiration.
+Added: During the year ended December 31, 2021, the gasoline futures market alternated between periods of contango and backwardation as represented by the front month gasoline futures contract and the next to expire gasoline futures contract.
+Added: During periods of contango, the price of the near month gasoline Futures Contract was lower than the price of the next month gasoline Futures Contract or contracts further away from expiration.
+Added: On days when the market was in backwardation, the price of the near month gasoline Futures Contract is higher than the price of the next month gasoline Futures Contract, or contracts further away from expiration.
For a discussion of the impact of backwardation and contango on total returns, see “ Term Structure of Gasoline Prices and the Impact on Total Returns ” below.
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As of December 31, 2021, UGA had the following Authorized Participants:
−Removed: Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Goldman Sachs & Company, JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas Securities LLC, and Virtu Financial BD LLC.
+Added: Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Goldman Sachs & Co., JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Company Inc., RBC Capital Markets LLC, SG Americas Securities LLC, and Virtu Americas LLC.
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
−Removed: December 31, 2020
−Removed: December 31, 2019
Per share net asset value, end of year
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The fee is accrued daily and paid monthly.
−Removed: The decrease in the per share NAV for the year ended December 31, 2020, compared to the year ended December 31, 2019, was due primarily to lower prices for gasoline and the related decrease in the value of the Gasoline Futures Contracts in which UGA held and traded .
+Added: The increase in the per share NAV for the year ended December 31, 2021, compared to the year ended December 31, 2020, was due primarily to higher prices for gasoline and the related increase in the value of the Gasoline Futures Contracts in which UGA held and traded.
Average interest rates earned on short-term investments held by UGA, including cash, cash equivalents and Treasuries, were lower during the year ended December 31, 2021, compared to the year ended December 31, 2020.
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To the degree that the aggregate yield is lower, the net expense ratio, inclusive of income, will be higher.
−Removed: The increase in total fees and other expenses excluding management fees for the year ended December 31, 2020, compared to the year ended December 31, 2019 was due primarily to UGA’s larger size as measured by total net assets.
−Removed: The increase in total commissions accrued to brokers for the year ended December 31, 2020, compared to the year ended December 31, 2019, was due primarily to a higher number of Gasoline Futures Contracts being held and traded.
+Added: The increase in total fees and other expenses excluding management fees for the year ended December 31, 2021, compared to the year ended December 31, 2020 was due primarily to an increase in professional fees and directors’ fees and insurance partially offset by a decrease in commissions.
+Added: The decrease in total commissions accrued to brokers for the year ended December 31, 2021, compared to the year ended December 31, 2020, was due primarily to a lower number of Gasoline Futures Contracts being held and traded.
Tracking UGA’s Benchmark
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As an example, if the average daily movement of the price of the Benchmark Futures Contract for a particular 30-valuation day time period was 0.50% per day, USCF would attempt to manage the portfolio such that the average daily movement of the per share NAV during that same time period fell between 0.45% and 0.55% (i.e., between 0.9 and 1.1 of the benchmark’s results).
−Removed: UGA’s portfolio management goals do not include trying to make the nominal price of UGA’s per share NAV equal to the nominal price of the current Benchmark Futures Contract or the spot price for gasoline.
+Added: UGA's portfolio management goals do not include trying to make the nominal price of UGA's per share NAV equal to the nominal price of the current Benchmark Futures Contract or the
+Added: spot price for gasoline.
USCF believes that it is not practical to manage the portfolio to achieve such an investment goal when investing in Futures Contracts and Other Gasoline-Related Investments.
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The average daily difference was (0.003)% (or (0.3) basis points, where 1 basis point equals 1/100 of 1%), meaning that over this time period UGA’s NAV performed within the plus or minus 10% range established as its benchmark tracking goal.
−Removed: The average daily difference expressed as a percentage of the average daily change in Benchmark Futures Contract for the same period was (3.689)%.
−Removed: This ratio expressed in percentage terms is significantly affected by days or periods with flat price returns, and therefore, is not a meaningful measure of how well UGA tracks its benchmark.
Since the commencement of the offering of UGA’s shares to the public on February 26, 2008 to December 31, 2021, the average daily change in the Benchmark Futures Contract was 0.026%, while the average daily change in the per share NAV of UGA over the same time period was 0.025%.
The average daily difference was (0.001)% (or (0.1) basis points, where 1 basis point equals 1/100 of 1%), meaning that over this time period UGA’s NAV performed within the plus or minus 10% range established as its benchmark tracking goal.
−Removed: The average daily difference expressed as a percentage of the average daily change in Benchmark Futures Contract for the same period was (0.321)%.
−Removed: This ratio expressed in percentage terms is significantly affected by days or periods with flat price returns, and therefore, is not a meaningful measure of how well UGA tracks its benchmark.
The following two graphs demonstrate the correlation between the changes in UGA’s NAV and the changes in the Benchmark Futures Contract.
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However, if UGA’s daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Futures Contract, UGA would have had an estimated per share NAV of $41.36 as of December 31, 2021, for a total return over the relevant time period of 70.28%.
−Removed: The difference between the actual per share NAV total return of UGA of (24.82)% and the expected total return based on the Benchmark Futures Contract of (24.73)% was an error over the time period of (0.093)%, which is to say that UGA’s actual total return underperformed its benchmark by that percentage.
+Added: The difference between the actual per share NAV total return of UGA of 68.96% and the expected total return based on the Benchmark Futures Contract of 70.28% was a difference over the time period of (1.320)%, which is to say that UGA’s actual total return underperformed its benchmark by that percentage.
UGA incurs expenses primarily composed of the management fee, brokerage commissions for the buying and selling of futures contracts, and other expenses.
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However, if UGA’s daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Futures Contract, UGA would have had an estimated per share NAV of $24.32 as of December 31, 2020, for a total return over the relevant time period of (24.73)%.
−Removed: The difference between the actual per share NAV total return of UGA of 42.08% and the expected total return based on the Benchmark Futures Contract of 40.19% was an error over the time period of 1.89%, which is to say that UGA’s actual total return outperformed its benchmark by that percentage.
+Added: The difference between the actual per share NAV total return of UGA of (24.82)% and the expected total return based on the Benchmark Futures Contract of (24.73)% was a difference over the time period of (0.093)%, which is to say that UGA’s actual total return outperformed its benchmark by that percentage.
UGA incurred expenses primarily composed of the management fee, brokerage commissions for the buying and selling of futures contracts, and other expenses.
−Removed: The impact of these expenses, offset by interest and dividend income, and net of positive or negative execution, tended to cause daily changes in the per share NAV of UGA to track slightly higher than daily changes in the price of the Benchmark Futures Contract.
+Added: The impact of these expenses, offset by interest and dividend income, and net of positive or negative execution, tended to cause daily changes in the per share NAV of UGA to track slightly lower than daily changes in the price of the Benchmark Futures Contract.
There are currently three factors that have impacted or are most likely to impact UGA’s ability to accurately track Benchmark Futures Contract.
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When short-term yields drop to a level lower than the combined expenses of the management fee and the brokerage commissions, then the tracking error becomes a negative number and would tend to cause the daily returns of the per share NAV to underperform the daily returns of the Benchmark Futures Contract.
−Removed: USCF anticipates that interest rates may continue to stagnate
−Removed: over the near future near historical lows.
+Added: USCF anticipates that interest rates may rise over the near future from historical lows.
It is anticipated that fees and expenses paid by UGA may be higher than interest earned by UGA.
−Removed: As such, USCF anticipates that UGA could possibly underperform its benchmark so long as interest earned is less than the fees and expenses paid by UGA.
+Added: As such, USCF anticipates that UGA could possibly underperform its benchmark so long as interest earned is lower than the fees and expenses paid by UGA.
Third, UGA may hold Other Gasoline-Related Investments in its portfolio that may fail to closely track the Benchmark Futures Contract’s total return movements.
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During the year ended December 31, 2021, UGA did not hold any Other Gasoline-Related Investments.
−Removed: If UGA increases in size, and due to its obligations to comply with regulatory limits, UGA may invest in Other Gasoline- Related Investments which may have the effect of increasing transaction related expenses and may result in increased tracking error.
+Added: If UGA increases in size, and due to its obligations to comply with market conditions and regulatory limits, UGA may invest in Other Gasoline- Related Investments which may have the effect of increasing transaction related expenses and may result in increased tracking error.
Term Structure of Gasoline Futures Prices and the Impact on Total Returns .
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As a result, it would be possible for the new near month futures contract to rise only 10% while the spot price of gasoline may have risen a higher amount, e.g., 12%.
−Removed: Similarly, the spot price of gasoline could have fallen 10% while the value of an investment in the second month futures contract might have fallen
−Removed: another amount, e.g., 12%.
+Added: Similarly, the spot price of gasoline could have fallen 10% while the value of an investment in the second month futures contract might have fallen another amount, e.g., 12%.
Over time, if contango remained constant, this difference between the spot price and the futures contract price would continue to increase.
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When the price of the near month futures contract is lower than the 13 th month futures contract, the market would be described as being in contango.
−Removed: Although the price of the near month futures contract and the price of the 13 th month futures contract tend to move together, it can be seen that at times the near month futures contract prices are higher than the 13 th month futures contract prices (backwardation) and, at other times, the near month futures contract prices are lower than the 13 th month futures contract prices (contango).
+Added: Although the price of the near month futures contract and the price of the 13 th month futures contract tend to move together, it can be seen that at times the
+Added: near month futures contract prices are higher than the 13 th month futures contract prices (backwardation) and, at other times, the near month futures contract prices are lower than the 13 th month futures contract prices (contango).
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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For example, an investment in UGA shares made on December 31, 2020 and held until December 31, 2021 decreased based upon the changes in the NAV for UGA shares on those days, by approximately -%, while the spot price of gasoline for immediate delivery during the same period decreased by -% (note:
−Removed: this comparison ignores seasonal
−Removed: factors and the potential costs associated with physically owning and storing gasoline, which could be substantial).
−Removed: By comparison, an investment in UGA shares made on December 31, 2018 and held to December 31, 2019 increase based upon the changes in the NAV for UGA shares on those days, by approximately 42.11%, while the spot price of gasoline for immediate delivery during the same period increased by 28.26% (note:
+Added: this comparison ignores seasonal factors and the potential costs associated with physically owning and storing gasoline, which could be substantial).
+Added: By comparison, an investment in UGA shares made on December 31, 2019 and held to December 31, 2020 increase based upon the changes in the NAV for UGA shares on those days, by approximately 24.82%, while the spot price of gasoline for immediate delivery during the same period increased
+Added: by 17.05% (note:
this comparison ignores the potential costs associated with physically owning and storing gasoline, which could be substantial).
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Gasoline Market.
−Removed: During the year ended December 31, 2020, the price of unleaded gasoline in the United States traded in a range between $1.6978 and $0.4118.
−Removed: Gasoline declined 17.05% for the year ended December 31, 2020, finishing the quarter at $1.4084.
+Added: During the year ended December 31, 2021, the price of the front month gasoline futures contracts traded in a range between $1.3729 and $2.5168.
+Added: Prices increased 57.76% from December 31, 2020 through December 31, 2021, finishing the fourth quarter of 2021 at $2.2285.
+Added: USCF believes that over both the medium-term and the long-term, changes in the price of crude oil will exert the greatest influence on the price of refined petroleum products such as gasoline.
+Added: At the same time, there can be other factors that, particularly in the short term, cause the price of gasoline to rise (or fall), more (or less) than the price of crude oil.
+Added: For example, higher gasoline prices cause American consumers to reduce their gasoline consumption, particularly during the high demand period of the summer driving season and gasoline prices are impacted by the availability of refining capacity.
+Added: Furthermore, a slowdown or recession in the U.S.
+Added: economy may have a greater impact on U.S.
+Added: gasoline prices than on global crude oil prices.
+Added: As a result, it is possible that changes in gasoline prices may not match the changes in crude oil prices.
Crude Oil Market .
−Removed: During the twelve months ended September 30, 2020, crude oil prices traded in a range between $(37.63) to $63.27.
−Removed: (USO had already rolled out of the front month May WTI crude oil futures contract during the period when it went negative.) Crude oil declined (20.54)% from the end of 2019 through December 31, 2020 finishing the quarter at $48.52.
+Added: During the year ended December 31, 2021, the price of the front month WTI crude oil futures contract traded in a range between $47.62 to $84.65.
+Added: Prices increased 55.01% from December 31, 2020 through December 31, 2021, finishing the year at $75.21.
The simultaneous demand and supply shocks from the COVID-19 pandemic and Saudi-Russia price war precipitated unparalleled risk and volatility in crude oil markets during the first half of 2020.
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Although the members of OPEC+ reached a record-shattering agreement in mid-April of 2020, the implementation of new supply cuts came too late to prevent crude oil prices from plummeting to historic lows, culminating in a drop into negative territory for the May WTI crude oil futures contract on April 20, 2020.
−Removed: More recently, as economies reopened and OPEC+ supply cuts were absorbed by the market, WTI crude oil prices rose from all-time lows in the spring of 2020 to stabilize around $40 per barrel in June through October.
−Removed: Crude prices rose further in November and December to finish the year at $48.52.
−Removed: WTI crude oil inventories in the United States fell from a modern record of 541 million barrels (mb) in June to 493 mb by the end of 2020.
−Removed: Meanwhile crude oil production in the United States declined below 10 mb per day during the second half of 2020 after peaking over 13 mb per day in March 2020.
−Removed: The full impact of the world's response to the COVID-19 pandemic still has not been determined, and the winter surge in cases coupled with slow vaccine rollouts suggest that more economic pain may lie ahead.
−Removed: At this stage, it is impossible to predict whether crude oil prices will rise, fall, or remain stable.
−Removed: High risk remains in oil markets until demand and supply are fully balanced and the full impact of past, current, and future COVID-19 pandemic mitigation measures is known.
−Removed: USCF believes that over both the medium-term and the long-term, changes in the price of crude oil will exert the greatest influence on the price of refined petroleum products such as gasoline.
−Removed: At the same time, there can be other factors that, particularly in the short term, cause the price of gasoline to rise (or fall), more (or less) than the price of crude oil.
−Removed: For example, higher gasoline prices cause American consumers to reduce their gasoline consumption, particularly during the high demand period of the summer driving season and gasoline prices are impacted by the availability of refining capacity.
−Removed: Furthermore, a slowdown or recession in the U.S.
−Removed: economy may have a greater impact on U.S.
−Removed: gasoline prices than on global crude oil prices.
−Removed: As a result, it is possible that changes in gasoline prices may not match the changes in crude oil prices.
+Added: As economies reopened and OPEC+ supply cuts were absorbed by the market, WTI crude oil prices rose from all-time lows in the spring of 2020 to an average of $68.00 per barrel during calendar year 2021.
+Added: WTI crude oil inventories in the United States fell from a modern record of 541 mb in June 2020 to 418 mb by the end of the fourth quarter of 2021.
+Added: Crude oil production in the United States fell below 10 mbd twice in 2020 and once in early 2021 after peaking at 13.1 mbd in March of 2020.
+Added: Production rose to 11.8 mbd by December 31, 2021.
+Added: Similarly, OPEC production declined from over 30 mbd pre-COVID-19 to a pandemic low of 22.5 mbd before gradually recovering to 28.1 mbd by December 31, 2021.
+Added: It is uncertain how quickly OPEC, Russia, or the U.S.
+Added: can or will return to pre-pandemic 2019 production levels.
+Added: Meanwhile, U.S.
+Added: vehicle miles traveled and jet fuel use have nearly recovered to pre-pandemic levels.
+Added: The ongoing demand recovery for crude oil has resulted in higher prices.
+Added: Supply constraints, worker shortages, infrastructure and manufacturing energy usage, and geopolitical tensions, all suggest potential further upside for crude oil.
+Added: However, elevated risk remains in the oil markets until the full impact of past, current, and future COVID-19 pandemic mitigation measures is known.
Unleaded Gasoline Price Movements in Comparison to Other Energy Commodities and Investment Categories .
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Statistically, such a measure is usually done by measuring the correlation of the price movements of the two different investments or asset classes over some period of time.
−Removed: The correlation is scaled between 1 and -1, where 1 indicates that the two investment options move up or down in price or value together, known as “positive correlation,” and -1 indicates that they move in completely opposite directions, known as “negative correlation.” A correlation of 0 would mean that the movements
−Removed: of the two are neither positively nor negatively correlated, known as “non-correlation.” That is, the investment options sometimes move up and down together and other times move in opposite directions.
+Added: The correlation is scaled between 1 and -1, where 1 indicates that the two investment options move up or down in price or value together, known as “positive correlation,” and -1 indicates that they move in completely opposite directions, known as “negative correlation.” A correlation of 0 would mean that the movements of the two are neither positively nor negatively correlated, known as “non-correlation.” That is, the investment options sometimes move up and down together and other times move in opposite directions.
For the ten-year time period between December 31, 2011 and December 31, 2021, the table below compares the monthly movements of unleaded gasoline prices versus the monthly movements of the prices of several other energy commodities, such as natural gas, crude oil and diesel-heating oil, as well as several major non-commodity investment asset classes, such as large cap U.S.
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government bonds and global equities.
−Removed: It can be seen that over this particular time period, the movement of gasoline on a monthly basis was strongly correlated with crude oil and diesel-heating oil, somewhat correlated with large cap U.S.
−Removed: equities and global equities, uncorrelated with natural gas, and somewhat negatively correlated with U.S.
−Removed: government bonds.
+Added: It can be seen that over this particular time period, the movement of gasoline on a monthly basis was strongly correlated with crude oil and diesel-heating oil and somewhat correlated with large cap U.S.
+Added: equities, U.S.
+Added: government bonds, global equities and natural gas.
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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The table below covers a more recent, but much shorter, range of dates than the above table.
−Removed: Over the one year period ended December 31, 2020, gasoline was strongly correlated with movements in large cap U.S.
−Removed: equities, global equities, crude oil and diesel-heating oil, uncorrelated with natural gas and negatively correlated with U.S.
−Removed: government bonds.
+Added: Over the one year period ended December 31, 2021, gasoline was strongly correlated with crude oil, diesel-heating oil, large cap U.S.
+Added: equities, U.S.
+Added: government bonds, global equities and natural gas.
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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In addition, USCF believes that, when measured over time periods shorter than ten years, there will always be some periods where the correlation of gasoline to equities and bonds will be either more strongly positively correlated or more strongly negatively correlated than the long-term historical results suggest.
−Removed: The correlations between gasoline, crude oil, natural gas and diesel-heating oil are relevant because USCF endeavors to invest UGA’s assets in Futures Contracts and Other Gasoline-Related Investments so that daily changes in percentage terms in UGA’s per share NAV
−Removed: correlate as closely as possible with daily changes in percentage terms in the price of the Benchmark Futures Contract.
+Added: The correlations between gasoline, crude oil, natural gas and diesel-heating oil are relevant because USCF endeavors to invest UGA’s assets in Futures Contracts and Other Gasoline-Related Investments so that daily changes in percentage terms in UGA’s per share NAV correlate as closely as possible with daily changes in percentage terms in the price of the Benchmark Futures Contract.
If certain other fuel-based commodity futures contracts do not closely correlate with the gasoline Futures Contract, then their use could lead to greater tracking error.
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Critical Accounting Policies
−Removed: Preparation of the condensed financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate accounting rules and guidance, as well as the use of estimates.
+Added: Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate accounting rules and guidance, as well as the use of estimates.
UGA’s application of these policies involves judgments and actual results may differ from the estimates used.
−Removed: USCF has evaluated the nature and types of estimates that it makes in preparing UGA’s condensed financial statements and related disclosures and has determined that the valuation of its investments, which are not traded on a United States or internationally recognized futures exchange (such as forward contracts and OTC swaps) involves a critical accounting policy.
+Added: USCF has evaluated the nature and types of estimates that it makes in preparing UGA’s financial statements and related disclosures and has determined that the valuation of its investments, which are not traded on a United States or internationally recognized futures exchange (such as forward contracts and OTC swaps) involves a critical accounting policy.
The values which are used by UGA for its Futures Contracts are provided by its commodity broker who uses market prices when available, while OTC swaps are valued based on the present value of estimated future cash flows that would be received from or paid to a third party in settlement of these derivative contracts prior to their delivery date and valued on a daily basis.
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Income received from UGA’s investments in money market funds and Treasuries is paid to UGA.
−Removed: During the year ended December 31, 2020, UGA's expenses exceeded the income UGA earned and the cash earned from the sale of Creation Baskets and the redemption of Redemption Baskets.
−Removed: During the year ended December 31, 2019, UGA's expenses did not exceed the income UGA earned and the cash earned from the sale of Creation Baskets and the redemption of Redemption Baskets.
+Added: During the year ended December 31, 2021, UGA’s expenses, pre and post expense waiver, exceeded the income UGA earned and the cash earned from the sale of Creation Baskets and the redemption of Redemption Baskets.
+Added: During the year ended December 31, 2021, UGA used other assets to pay expenses.
To the extent expenses exceed income, UGA’s NAV will be negatively impacted.
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UGA may terminate at any time, regardless of whether UGA has incurred losses, subject to the terms of the LP Agreement.
−Removed: In particular, unforeseen circumstances, including the adjudication of incompetence, bankruptcy, dissolution, or removal of USCF as the general partner of UGA could cause UGA to terminate unless a majority interest of the limited partners within 90 days of the event elects to continue the partnership and appoints a successor general partner, or the affirmative vote of a majority in interest of the limited partners subject to certain conditions.
−Removed: However, no level of losses will require USCF to terminate UGA.
+Added: In particular, unforeseen circumstances, including, but not limited to, (i) market conditions, regulatory requirements, risk mitigation measures taken by UGA or third parties or otherwise that would lead UGA to determine that it could no longer foreseeably meet its investment objective or that UGA’s aggregate net assets in relation to its operating expenses or its margin or collateral requirements make the continued operation of UGA unreasonable or imprudent, or (ii) adjudication of incompetence, bankruptcy, dissolution, withdrawal or removal of USCF as the general partner of UGA could cause UGA, to terminate unless a majority interest of the limited partners within 90 days of the event elects to continue the partnership and appoints a successor general partner, or the affirmative vote of a majority in interest of the limited partners subject to certain conditions.
UGA’s termination would cause the liquidation and potential loss of an investor’s investment.
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In particular, UGA generally posts margin and/or holds liquid assets that are approximately equal to the market value of its obligations to counterparties under the Futures Contracts and Other Gasoline-Related Investments it holds.
−Removed: USCF has implemented procedures that include, but are not limited to, executing and clearing trades only with creditworthy parties and/or requiring the posting of collateral or margin by such parties for the benefit of UGA to limit its credit exposure.
+Added: USCF has implemented procedures that include, but are not limited to, executing and clearing trades only with creditworthy parties and/or requiring the posting of collateral or margin by such parties for
+Added: the benefit of UGA to limit its credit exposure.
An FCM, when acting on behalf of UGA in accepting orders to purchase or sell Futures Contracts on United States exchanges, is required by CFTC regulations to separately account for and segregate as belonging to UGA, all assets of UGA relating to domestic Futures Contracts trading.
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USCF pays the fees of the Marketing Agent as well as BNY Mellon’s fees for performing administrative, custodial, and transfer agency services.
−Removed: BNY Mellon’s fees for performing administrative services include those in connection with the preparation of UGA’s condensed financial statements and its SEC, NFA and CFTC reports.
+Added: BNY Mellon’s fees for performing administrative services include those in connection with the preparation of UGA’s financial statements and its SEC, NFA and CFTC reports.
USCF and UGA have also entered into a licensing agreement with the NYMEX pursuant to which UGA and the Related Public Funds, other than BNO, USCI and CPER, pay a licensing fee to the NYMEX.
UGA also pays the fees and expenses associated with its tax accounting and reporting requirements.
−Removed: USCF has voluntarily agreed to pay certain expenses typically borne by UGA to the extent that such expenses exceeded 0.15% (15 basis points) of UGA‘s NAV, on an annualized basis.
−Removed: USCF has no obligation to continue such payments into subsequent periods.
−Removed: This voluntary expense waiver is in addition to those amounts USCF is contractually obligated to pay as described in Note 4 to the Notes to Financial Statements in Item 8 of this annual report on Form 10-K.
−Removed: USCF paid BBH&Co.’s fees for performing administrative services, including those in connection with the preparation of UGA's condensed financial statements and its SEC, NFA and CFTC reports through May 31, 2020.
+Added: USCF had voluntarily agreed to pay certain expenses typically borne by UGA to the extent that such expenses exceeded 0.15% (15 basis points) of UGA‘s NAV, on an annualized basis.
+Added: USCF terminated such expense waiver as of April 30, 2021.
+Added: This voluntary expense waiver was in addition to those amounts USCF is contractually obligated to pay as described in Note 4 to the Notes to Financial Statements in Item 8 of this annual report on Form 10-K and terminated on April 30, 2021.
+Added: USCF paid BBH&Co.’s fees for performing administrative services, including those in connection with the preparation of UGA’s financial statements and its SEC, NFA and CFTC reports through May 31, 2020.
In addition to USCF’s management fee, UGA pays its brokerage fees (including fees to an FCM), OTC dealer spreads, any licensing fees for the use of intellectual property, and, subsequent to the initial offering, registration and other fees paid to the SEC, FINRA, or other regulatory agencies in connection with the offer and sale of shares, as well as legal, printing, accounting and other expenses associated therewith, and extraordinary expenses.
The latter are expenses not incurred in the ordinary course of UGA’s business, including expenses relating to the indemnification of any person against liabilities and obligations to the extent permitted by law and under the LP Agreement, the bringing or defending of actions in law or in equity or otherwise conducting litigation and incurring legal expenses and the settlement of claims and litigation.
−Removed: Commission payments to an FCM are on a contract-by-contract, or round turn, basis.
+Added: Commission payments to an FCM are on a contract-by-contract, or round turn,
UGA also pays a portion of the fees and expenses of the independent directors of USCF.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.