What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-26 · 99 added, 114 removed, 383 unchanged (36% of the section changed)

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USL believes these factors include, but are not limited to, the following:

changes in inflation in the United States;

movements in U.S.

and foreign currencies;

significant market volatility in the crude oil markets and futures markets attributable to the COVID-19 pandemic, disputes among oil-producing countries over the potential limits on the production of crude oil, a corresponding collapse in demand for crude oil and a lack of on-land storage for crude oil;

uncertainties associated with the impact from the coronavirus (COVID-19) pandemic, including:

changes in inflation in the United States, movements in U.S.

and foreign currencies, market volatility in the crude oil markets and futures markets, in part attributable to the COVID-19 pandemic, related supply chain disruptions, ongoing disputes among oil-producing countries, uncertainties associated with the impact from the coronavirus (COVID-19) pandemic, including:

its impact on the global and U.S.

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USL seeks to achieve its investment objective by investing so that the average daily percentage in USL’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 Oil Futures Contracts over the same period.

USL’s investment objective is not for its NAV or market price of shares to equal, in dollar terms, the spot price of light, sweet crude oil or any particular futures contract based on light, sweet crude oil, nor is USL’s investment objective for the percentage change in its NAV to reflect the percentage change of the price of any particular futures contract as measured

over a time period greater than one day .

The general partner of USL, United States Commodity Funds LLC (“USCF”) believes that it is not practical to manage the portfolio to achieve such an investment goal when investing in Oil Futures Contracts (as defined below) and Other Oil-Related Investments (as defined below).

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Accountability Levels, Position Limits and Price Fluctuation Limits.

Designated contract markets (“DCMs”), such as the NYMEX and ICE Futures, have established accountability levels and position limits on the maximum net long or net short futures contracts in commodity interests that any person or group of persons under common trading control (other than as a hedge, which an investment by USL is not) may hold, own or control.

USL is not) may hold, own or control.

These levels and position limits apply to the futures contracts that USL invests in to meet its investment objective.

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If deemed necessary by the NYMEX and/or ICE Futures, USL could be ordered to reduce its net futures contracts back to the accountability level.

As of December 31, 2020, USL held 4,069 futures contracts for light, sweet crude oil traded on the NYMEX and did not hold any Oil Futures Contracts traded on the ICE Futures.

For the fiscal year ended December 31, 2020, USL did not exceed the accountability levels imposed by the NYMEX or ICE Futures, however, the aggregated total of certain of the Related Public Funds did exceed the accountability levels.

No action was taken by NYMEX and USL did not reduce the number of Oil Futures Contracts held as a result.

USCF received letters from the CME on behalf of the NYMEX Market Regulation Department on April 16, 2020 (the “April 16 CME Letter”) and on April 23, 2020 (the “April 23 CME Letter”, and together with the April 16 CME Letter, the “CME Letters”).

The CME Letters ordered USCF and the Related Public Funds not to exceed accountability levels in specified light, sweet crude oil futures contracts and not to assume any positions in the specified light, sweet crude oil futures contract in excess of the exchange established position limits.

The current accountability levels and position limits are set forth in the April 23 CME Letter which superseded the April 16 CME Letter.

The accountability levels and position limits are set forth in the April 23 CME Letter which superseded the April 16 CME Letter.

The April 23 CME Letter ordered USCF, USL and the Related Public Funds not to exceed accountability levels in excess of 10,000 futures contracts in the light, sweet crude oil futures contract for June 2020.

While these limits no longer apply, NYMEX’s current accountability levels for any one month in the Benchmark Oil Futures Contract is 10,000 contracts, and an accountability level for all months of 20,000 net futures contracts for light sweet crude oil, do apply.

As of December 31, 2021, USL held 1,902 futures contracts for light, sweet crude oil traded on the NYMEX and did not hold any Oil Futures Contracts traded on the ICE Futures.

For the fiscal year ended December 31, 2021, USL did not exceed the accountability levels imposed by the NYMEX or ICE Futures, however, the aggregated total of certain of the Related Public Funds did exceed the accountability levels.

No action was taken by NYMEX and USL did not reduce the number of Oil Futures Contracts held as a result.

Position limits differ from accountability levels in that they represent fixed limits on the maximum number of futures contracts that any person may hold and cannot allow such limits to be exceeded without express CFTC authority to do so.

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The April 23 CME Letter, discussed above, ordered USCF, USL and the Related Public Funds not to assume a position in the light, sweet crude oil futures contract for June 2020 in excess of 15,000 long futures contracts, for July 2020 in 78,000 long futures contracts, for August 2020 in 50,000 long futures contracts, for September 2020 in 35,000 long futures contracts.

While these limits no longer apply, the position imposed by NYMEX and ICE, described above, do apply.

The foregoing accountability levels and position limits are subject to change.

For the fiscal year ended December 31, 2021, USL did not exceed any position limits imposed by the NYMEX and ICE Futures.

The regulation of commodity interest trading in the United States and other countries is an evolving area of the law.

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, the NFA, the futures exchanges, clearing organizations and other regulatory bodies.

Pending final resolution of all applicable regulatory requirements, some examples of how new rules and regulations could impact USL are discussed in “Item 1.

Business” and “Item 1A.

Risk Factors” in this annual report on Form 10-K.

Futures Contracts and Position Limits

The CFTC is generally prohibited by statute from regulating trading on non-U.S.

futures exchanges and markets.

The CFTC, however, has adopted regulations relating to the marketing of non-U.S.

futures contracts in the United States.

These regulations permit certain contracts on non-U.S.

exchanges to be offered and sold in the United States.

On October 15, 2020, the CFTC approved a 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.

The Position Limits Rule sets position limits for the spot month and non-spot month;

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”).

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.

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.

Further, the Position Limits Rule sets forth two alternative processes for pursuing an exemption for non-enumerated hedge positions.

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.

The Benchmark Oil Futures Contract will be subject to position limits under the Position Limits Rule, and USL’s trading does not qualify as an enumerated bona fide hedge.

The Benchmark Oil Futures Contract will be subject to position limits under the Position Limits Rule, and USL’s trading does not qualify for an exemption therefrom.

Accordingly, the Position Limits Rule could negatively impact the ability of USL to meet its investment objective by inhibiting USCF’s ability to effectively invest the proceeds from sales of Creation Baskets of USL in particular amounts and types of its permitted investments.

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.

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).

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").

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”).

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On December 16, 2015 the CFTC finalized its margin rules, which are substantially the same as the Final Margin Rules and have the same implementation timeline.

The SEC adopted margin rules for security-based swap dealers and

major security-based swap participants on June 21, 2019.

The SEC adopted margin rules for security-based swap dealers and major security-based swap participants on June 21, 2019.

The SEC’s margin rules are generally aligned with the Final Margin Rules and the CFTC’s margin rules, but they differ in a few key respects relating to timing for compliance and the manner in which initial margin must be segregated.

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As a result, if USL 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.

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 USL 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.

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 USL 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.

Additional margin may be required and held by USL’s FCMs.

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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.

The CFTC is generally prohibited by statue from regulating trading on non-U.S.

futures exchanges and markets.

The CFTC, however, has adopted regulations relating to the marketing of non-U.S.

futures contracts in the United States.

These regulations permit certain contracts on non-U.S.

exchanges to be offered and sold in the United States.

Money Market Funds

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”).

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 USL.

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However, if USL invests in other types of MMFs besides government MMFs in the future, USL 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).

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 USL may lose money by investing in a government money market fund.

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.

The share price of a government money market fund can fall below the $1.00 share price.

USL 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.

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.

Due to fluctuations in interest rates, the market value of securities held by a government money market fund may vary.

A government money

market fund’s share price can also be negatively affected during periods of high redemption pressures and/or illiquid markets.

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 USL may lose money by investing in a government MMF.

An investment in a government MMF is not insured or guaranteed by the Federal Deposit Insurance Corporation (the “FDIC”) or any other government agency.

The share price of a government MMF can fall below the $1.00 share price.

USL 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.

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.

Due to fluctuations in interest rates, the market value of securities held by a government MMF may vary.

A government MMF’s share price can also be negatively affected during periods of high redemption pressures and/or illiquid markets.

Price Movements

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The average price of the Benchmark Oil Futures Contracts started the year at $48.27 per barrel.

The high of the year was on January 6, 2020 when the average price reached $60.66 per barrel.

The average low for the year was on April 21, 2020, which was $24.80 per barrel.

The year ended with the average price of the Benchmark Oil Futures Contracts at $48.27 per barrel, decrease of approximately (17.63)% over the year.

USL’s per share NAV began the year at $22.95 and ended the year at $17.23 on December 31, 2020, decrease of approximately (24.92)% over the year.

The high of the year was on October 20, 2021 when the average price reached $78.44 per barrel.

The average low for the year was on January 4, 2021, which was $47.61 per barrel.

The year ended with the average price of the Benchmark Oil Futures Contracts at $72.40 per barrel, an increase of approximately 49.99% over the year.

USL’s per share NAV began the year at $17.23 and ended the year at $27.81 on December 31, 2021, increase of approximately 61.40% over the year.

The average Benchmark Oil Futures Contracts prices listed above began with the February 2021 to January 2022 contracts and ended with the February 2022 to January 2023 contracts.

The decrease of approximately (17.63)% on the average price of the Benchmark Oil Futures Contracts listed above is a hypothetical return only and could not actually be achieved by an investor holding Oil Futures Contracts.

The increase of approximately 49.99% on the average price of the Benchmark Oil Futures Contracts listed above is a hypothetical return only and could not actually be achieved by an investor holding Oil Futures Contracts.

An investment in Oil 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 Oil Futures Contracts, measured from the start of the year to the end of the year, does not represent the actual benchmark results that USL seeks to track, which are more fully described below in the section titled “ Tracking USL's Benchmark .”

During the year ended December 31, 2020, the crude oil futures market was in state of both contango and backwardation.

When the market is in a state of contango, the near month crude Oil Futures Contract is lower than the price of the next month crude Oil Futures Contract, or contracts further away from expiration.

During periods of backwardation, the near month crude Oil Futures Contract is higher than the price of the next month crude Oil Futures Contract, or contracts further away from expiration.

Furthermore, the change in the nominal price of these differing Oil Futures Contracts, measured from the start of the year to the end of

the year, does not represent the actual benchmark results that USL seeks to track, which are more fully described below in the section titled “ Tracking USL’s Benchmark .”

During the year ended December 31, 2021, the crude oil futures market alternated between states of contango and backwardation.

On days when the market was in contango the price of the near month crude Oil Futures Contract is lower than the price of the next month crude Oil Futures Contract, or contracts further away from expiration.

On days when the market is in backwardation, the price of the near month crude Oil Futures Contract is higher than the price of the next month crude Oil 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 Crude Oil Prices and the Impact on Total Returns” below.

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As of December 31, 2021, USL had the following Authorized Participants:

Citadel Securities LLC, Citigroup Global Markets Inc., 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.

Citadel Securities LLC, Citigroup Global Markets Inc., Goldman Sachs & Company, 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

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The fee is accrued daily and paid monthly.

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 crude oil and the related decrease in the value of the Oil Futures Contracts in which USL held and traded.

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 crude oil and the related increase in the value of the Oil Futures Contracts in which USL held and traded.

Average interest rates earned on short-term investments held by USL, 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.

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 USL’s larger size as measured by total net assets.

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 Oil Futures Contracts being held and traded.

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 partially offset by lower brokerage commisions.

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 Oil Futures Contracts being held and traded.

Tracking USL’s Benchmark

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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 USL’s NAV performed within the plus or minus 10% range established as its benchmark tracking goal.

The average daily difference expressed as a percentage of average daily change in the Benchmark Oil Futures Contracts for the same period was (2.078)%.

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 USL tracks its benchmark.

Since the commencement of the offering of USL’s shares to the public on December 6, 2007 to December 31, 2021, the average daily change in the Benchmark Oil Futures Contracts was 0.007%, while the average daily change in the per share NAV of USL over the same time period was 0.006%.

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 USL’s NAV performed within the plus or minus 10% range established as its benchmark tracking goal.

The average daily difference expressed as a percentage of the average daily change in Benchmark Oil Futures Contract for the same period was (0.655)%.

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 USL tracks its benchmark.

The following two graphs demonstrate the correlation between the changes in USL’s NAV and the changes in the Benchmark Oil Futures Contracts.

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*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

An alternative tracking measurement of the return performance of USL versus the return of its Benchmark Oil Futures Contracts can be calculated by comparing the actual average of the prices of its return of USL, measured by changes in its per share NAV, versus the expected changes in its per share NAV under the assumption that USL’s returns had been exactly the same as the daily changes in the average of the prices of its Benchmark Oil Futures Contracts.

expected changes in its per share NAV under the assumption that USL’s returns had been exactly the same as the daily changes in the average of the prices of its Benchmark Oil Futures Contracts.

For the year ended December 31, 2021, the actual total return of USL as measured by changes in its per share NAV was 61.40%.

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However, if USL’s daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Oil Futures Contracts, USL would have had an estimated per share NAV of $28.05 as of December 31, 2021, for a total return over the relevant time period of 62.80%.

The difference between the actual per share NAV total return of USL of (24.92)% and the expected total return based on the Benchmark Oil Futures Contracts of (24.58)% was an error over the time period of (0.34)% which is to say that USL’s actual total return underperformed its benchmark by that percentage.

The difference between the actual per share NAV total return of USL of 61.40% and the expected total return based on the Benchmark Oil Futures Contracts of 62.80% was a difference over the time period of (1.40)% which is to say that USL’s actual total return underperformed its benchmark by that percentage.

USL incurs expenses primarily composed of the management fee, brokerage commissions for the buying and selling of futures contracts, and other expenses.

The impact of these expenses, offset by interest and dividend income, and net of positive or negative execution, tends to cause daily changes in the per share NAV of USL to track slightly lower than daily changes in the price of the Benchmark Oil Futures Contracts.

The impact of these expenses, offset by interest and dividend income, and net of positive or negative execution, tends to cause daily changes in the per share NAV of USL to track slightly lower or higher than daily changes in the price of the Benchmark Oil Futures Contracts.

By comparison, for the year ended December 31, 2020, the actual total return of USL as measured by changes in its per share NAV was (24.92)%.

This is based on an initial per share NAV of $17.82 as of December 31, 2018 and an ending per share NAV as of December 31, 2019 of $22.95.

This was based on an initial per share NAV of $22.95 as of December 31, 2019 and an ending per share NAV as of December 31, 2020 of $17.23.

During this time period, USL made no distributions to its shareholders.

However, if USL’s daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Oil Futures Contracts, USL would have had an estimated per share NAV of $17.31 as of December 31, 2020, for a total return over the relevant time period of (24.58)%.

The difference between the actual per share NAV total return of USL of 28.79% and the expected total return based on the Benchmark Oil Futures Contracts of 27.10% was an error over the time period of 1.69%, which is to say that USL’s actual total return outperformed its benchmark by that percentage.

USL incurs expenses primarily composed of the management fee, brokerage commissions for the buying and selling of futures contracts, and other expenses.

The impact of these expenses, offset by interest and dividend income,

and net of positive or negative execution, tends to cause daily changes in the per share NAV of USL to track slightly lower than daily changes in the price of the Benchmark Oil Futures Contracts.

The difference between the actual per share NAV total return of USL of (24.92)% and the expected total return based on the Benchmark Oil Futures Contracts of (24.58)% was a difference over the time period of (0.34)%, which is to say that USL’s actual total return underperformed its benchmark by that percentage.

USL incurred expenses primarily composed of the management fee, brokerage commissions for the buying and selling of futures contracts, and other expenses.

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 USL to track slightly lower or higher than daily changes in the price of the Benchmark Oil Futures Contracts.

There are currently three factors that have impacted or are most likely to impact USL’s ability to accurately track its Benchmark Oil Futures Contracts.

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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 Oil Futures Contracts.

USCF anticipates that interest rates may continue to stagnate over the near future near historical lows.

USCF anticipates that interest rates may rise over the near future from historical lows.

It is anticipated that fees and expenses paid by USL may continue to be higher than interest earned by USL.

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During the year ended December 31, 2021, USL did not hold any Other Oil-Related Investments.

If USL increases in size, and due to its obligations to comply with regulatory limits, USL may invest in Other Oil-Related Investments which may have the effect of increasing transaction related expenses and may result in increased tracking error.

If USL increases in size, and due to its obligations to comply with market conditions and regulatory limits, USL may invest in Other Oil-Related Investments which may have the effect of increasing transaction related expenses and may result in increased tracking error.

Term Structure of Crude Oil Futures Prices and the Impact on Total Returns.

S everal factors determine the total return from investing in futures contracts.

Several factors determine the total return from investing in futures contracts.

One factor arises from “rolling” futures contracts that will expire at the end of the current month (the “near” or “front” month contract) forward each month prior to expiration.

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During parts of 2009, the level of contango was unusually steep as a combination of slack U.S.

and global demand for crude oil and issues involving the physical transportation and storage of crude oil at Cushing, Oklahoma, the

primary pricing point for oil traded in the U.S., led to unusually high inventories of crude oil.

and global demand for crude oil and issues involving the physical transportation and storage of crude oil at Cushing, Oklahoma, the primary pricing point for oil traded in the U.S., led to unusually high inventories of crude oil.

A combination of improved transportation and storage capacity, along with growing demand for crude oil globally, moderated the inventory build-up and led to reduced levels of contango by 2011.

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Crude oil flipped back into contango in January 2020 and remained predominantly in contango throughout 2020.

In March 2020, contango dramatically increased and reached historic levels during the economic crisis arising from the COVID-19 pandemic and disputes among oil producing nations regarding limits on oil production levels.

In March 2020, contango dramatically increased and reached historic levels during the economic crisis arising from the COVID-19 pandemic, related supply chain disruptions and ongoing disputes among oil producing countries.

This level of contango was due to significant market volatility that occurred in crude oil markets as well as oil futures markets.

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Likewise, contango returned to moderate levels in May 2020.

During the twelve months ended December 31, 2021, the crude oil futures market was primarily in a state of backwardation as measured by the difference between the front month and the second month contract.

USCF believes that holding futures contracts whose expiration dates are spread out over a 12 month period of time will cause the total return of such a portfolio to vary compared to a portfolio that holds only a single month’s contract (such as the near month contract).

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Crude Oil Market .

During the year ended December 31, 2019, front month crude oil futures prices traded in a range between $(37.63) to $63.27.

Crude oil declined (20.54)% from the end of 2019 through December 31, 2020 finishing the quarter at $48.52.

During the year ended December 31, 2020, the average price of the Benchmark Oil Futures Contracts traded in a range between $47.61 to $78.44.

The average price of the Benchmark Oil Futures Contracts increased 49.99% from the end of 2020 through December 31, 2021 finishing the quarter at $72.40.

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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production juggernaut, OPEC+ (a loose coalition between OPEC and non-member nations such as Russia and Mexico) had maintained an uneasy series of agreements to curtail their crude oil output in order to support crude oil prices.

However, in early March of 2020, Russia

refused Saudi Arabia’s proposal to extend cuts in response to the COVID-19 demand shock.

However, in early March of 2020, Russia refused Saudi Arabia’s proposal to extend cuts in response to the COVID-19 demand shock.

The kingdom retaliated with a massive production increase, launching an all-out price war in the middle of a pandemic.

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Demand evaporated as a result of quarantines and massive drops in industrial and manufacturing activity.

Supply declined largely due to the historic agreement in April between the United States, OPEC, Russia, and other oil producers.

Supply declined largely due to the historic agreement in April of 2020 between the United States, OPEC, Russia, and other oil producers.

The bulk of the supply decline came from voluntary OPEC+ cuts while 2.8 mbd resulted from market-driven cuts in the United States.

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supply fall further.

Finally, in late June storage in the U.S.

Finally, in late June of 2020 storage in the U.S.

spiked to 541 million barrels while global storage reached 3.351 billion barrels.

The unprecedented twin crises described above caused unparalleled effects on oil futures markets.

The unprecedented twin crises described above caused unparalleled effects on oil futures markets during 2020.

First, WTI crude oil prices dipped below $20 for the first time since 2002 and hit an all-time closing low of $(37.63).

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and around the world.

Specifically, the front month WTI crude oil futures contract detached from the rest of the futures curve and fell to an extreme position relative to deferred futures contract months.

On a percentage basis, the difference between the front month WTI crude oil futures contract and the second month WTI crude oil futures contract was more than double the previous record.

This divergence caused WTI crude oil futures contracts with different expiration dates to move in different directions.

For example, the front month WTI crude oil futures contract and second month WTI crude oil futures contract typically move together (i.e., increase or decrease) about 99% of the time.

However, in late April of 2020, the correlation of the front and second month WTI crude oil futures contracts was (24)%, meaning these contracts were moving in opposite directions.

Specifically, the front month WTI crude oil futures contract detached from the rest of the futures curve and fell to an extreme position relative to futures contracts with expiration dates in later months.

On a percentage basis, the difference in price between the front month WTI Oil Futures Contract and the second month WTI Oil Futures Contract was more than double the previous record.

This divergence caused the price of WTI Oil Futures Contracts with different expiration dates to move in different directions.

For example, the price of the front month WTI Oil Futures Contract and second month WTI Oil Futures Contract typically move together (i.e., increase or decrease) about 99% of the time.

However, in late April of 2020, the correlation of the price of the front and second month WTI Oil Futures Contracts was (24)%, meaning that these contracts were moving in opposite directions.

Fourth, market participants moved away from the front of the futures curve in favor of deferred contract months.

The move to deferred contract months caused a historic change to relative levels of open interest among the different futures contracts.

The move to deferred contract months caused a historic change to relative levels of open interest among the different futures contracts in 2020.

For example, open interest in the front month futures contract fell an average of 40% during April, May, and June of 2020 compared to the average level of open interest during those same calendar months during the previous five years.

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.

Crude prices rose further in November and December to finish the year at $48.52.

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.

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.

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.

At this stage, it is impossible to predict whether crude oil prices will rise, fall, or remain stable.

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.

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.

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.

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.

Production rose to 11.8 mbd by December 31, 2021.

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.

It is uncertain how

quickly OPEC, Russia, or the U.S.

can or will return to pre-pandemic 2019 production levels.

Meanwhile, U.S.

vehicle miles traveled and jet fuel use have nearly recovered to pre-pandemic levels.

The ongoing demand recovery for crude oil has resulted in higher prices.

Supply constraints, worker shortages, infrastructure and manufacturing energy usage, and geopolitical tensions, all suggest potential further upside for crude oil.

However, elevated risk remains in the oil markets until the full impact of past, current, and future COVID-19 pandemic mitigation measures is known.

C rude Oil Price Movements in Comparison to Other Energy Commodities and Investment Categories.

USCF believes that investors frequently measure the degree to which prices or total returns of one investment or asset class move up or down

in value in concert with another investment or asset class.

USCF believes that investors frequently measure the degree to which prices or total returns of one investment or asset class move up or down in value in concert with another investment or asset class.

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.

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It can be seen that over this particular time period, the movement of crude oil on a monthly basis exhibited strong correlation with unleaded gasoline and diesel-heating oil, moderate correlation with the movements of large cap U.S.

equities and global equities, no correlation with natural gas, and limited negative correlation with U.S.

government bonds.

equities, U.S.

government bonds and global equities and limited correlation with natural gas.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Crude Oil - 10 Years

Correlation Matrix 10 Years

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The table below covers a more recent, but much shorter, range of dates than the above table.

Over the one year period ended December 31, 2020, movements of crude oil displayed strong correlation with large cap U.S.

equities, global equities, unleaded gasoline and diesel-heating oil and limited negative correlation with movements with natural gas and U.S.

Government bonds.

Over the one year period ended December 31, 2021, movements of crude oil displayed strong correlation with unleaded gasoline, diesel-heating oil, large cap U.S.

equities, U.S.

Government bonds, global equities and natural gas.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Crude Oil - 1 Year

Correlation Matrix 1 Year

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Critical Accounting Policies

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.

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.

USL’s application of these policies involves judgments and actual results may differ from the estimates used.

USCF has evaluated the nature and types of estimates that it makes in preparing USL’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.

USCF has evaluated the nature and types of estimates that it makes in preparing USL’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 USL for its Oil 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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USL has allocated substantially all of its net assets to trading in Oil Interests.

USL invests in Oil Interests to the fullest extent possible without being leveraged or unable to satisfy its current or potential margin or collateral obligations with respect to its investments in Oil Futures Contracts and

Other Oil-Related Investments.

A significant portion of USL’s NAV is held in cash and cash equivalents that are used as margin and as collateral for its trading in Oil Interests.

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Income received from USL’s investments in money market funds and Treasuries is paid to USL.

During the year ended December 31, 2020, USL's expenses did exceed the income USL earned and the cash earned from the sale of Creation Baskets and the redemption of Redemption Baskets.

During the year ended December 31, 2021, USL’s expenses exceeded the income USL earned and the cash earned from the sale of Creation Baskets and the redemption of Redemption Baskets.

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USL may terminate at any time, regardless of whether USL has incurred losses, subject to the terms of the LP Agreement.

In particular, unforeseen circumstances, including, but not limited to, (i) market conditions, regulatory requirements, risk mitigation measures taken by USL or third parties or otherwise that would lead USL to determine that it could no longer foreseeably meet its business objective or that USL's aggregate net assets in relation to its operating expenses or its margin or collateral requirements make the continued operation of USL unreasonable or imprudent, or (ii) adjudication of incompetence, bankruptcy, dissolution, withdrawal or removal of USCF as the general partner of USL could cause USL, 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.

In particular, unforeseen circumstances, including, but not limited to, (i) market conditions, regulatory requirements, risk mitigation measures taken by USL or third parties or otherwise that would lead USL to determine that it could no longer foreseeably meet its investment objective or that USL’s aggregate net assets in relation to its operating expenses or its margin or collateral requirements make the continued operation of USL unreasonable or imprudent, or (ii) adjudication of incompetence, bankruptcy, dissolution, withdrawal or removal of USCF as the general partner of USL could cause USL, 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.

However, no level of losses will require USL to terminate USL.

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Quantitative and Qualitative Disclosures About Market Risk” in this annual report on Form 10-K for a discussion of OTC swaps.

As of December 31, 2020, USL held cash deposits and investments in Treasuries and money market funds in the amount of $182,551,168 with the custodian and the FCMs.

Some or all of these amounts held by a custodian or an FCM, as applicable, may be subject to loss should USL's custodian or FCMs, as applicable, cease operations.

As of December 31, 2021, USL held cash deposits and investments in Treasuries and money market funds in the amount of $129,563,728 with the custodian and FCMs.

Some or all of these amounts held by a custodian or an FCM, as applicable, may be subject to loss should USL’s custodian or the FCMs, as applicable, cease operations.

Off Balance Sheet Financing

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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.

BNY Mellon’s fees for performing administrative services include those in connection with the preparation of USL’s condensed financial statements and its SEC, NFA and CFTC reports.

BNY Mellon’s fees for performing administrative services include those in connection with the preparation of USL’s financial statements and its SEC, NFA and CFTC reports.

USCF and USL have also entered into a licensing agreement with the NYMEX pursuant to which USL and the Related Public Funds, other than BNO, USCI and CPER, pay a licensing fee to the NYMEX.

USL also pays the fees and expenses associated with its tax accounting and reporting requirements.

USCF paid BBH&Co.’s fees for performing administrative services, including those in connection with the preparation of USL's condensed financial statements and its SEC, NFA and CFTC reports through May 31, 2020.

USCF paid BBH&Co.’s fees for performing administrative services, including those in connection with the preparation of USL’s financial statements and its SEC, NFA and CFTC reports through May 31, 2020.

In addition to USCF’s management fee, USL pays its brokerage fees (including fees to the FCMs), 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.

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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.

What changed 10-K

Item 7. Management’s Discussion and Analysis