What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-27 · 88 added, 87 removed, 389 unchanged (31% of the section changed)

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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 that began in February 2020 and Russia’s invasion of Ukraine in February 2022.

and foreign currencies, market volatility in the crude oil markets and futures markets, in part attributable to the COVID-19 pandemic in February 2020, the Russia-Ukraine war and conflicts in the Middle East.

Forward-looking statements, which involve assumptions and describe USL’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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USL has based the forward-looking statements included in this annual report on Form 10-K on information available to it on the date of this annual report on Form 10-K, and USL assumes no obligation to update any such forward-looking statements.

Although USL undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or

otherwise, investors are advised to consult any additional disclosures that USL may make directly to them or through reports that USL files in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Although USL undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, investors are advised to consult any additional disclosures that USL may make directly to them or through reports that USL files in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

USL, a Delaware limited partnership, is a commodity pool that issues shares that may be purchased and sold on the NYSE Arca.

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USL invests primarily in futures contracts for light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other U.S.

and foreign exchanges (collectively, “Oil Futures Contracts”) and to a lesser extent, in order to comply with regulatory requirements, risk mitigation measures, liquidity requirements, or in view of market conditions, other oil-related investments such as cash-settled options on Oil Futures Contracts, forward contracts for oil, cleared swap contracts and OTC swaps that are based on the price of oil, other petroleum-based fuels, Oil Futures Contracts and indices based on the foregoing (collectively, “Other Oil-Related Investments”).

and foreign exchanges (collectively, “Oil Futures Contracts”) and to a lesser extent, in order to comply with regulatory requirements, risk mitigation measures, liquidity requirements, or in view of market conditions, other oil-related investments such as cash-settled options on Oil Futures Contracts, forward contracts for oil, cleared swap contracts and OTC swaps that are based on the price of oil, and other petroleum-based fuels, Oil Futures Contracts and indices based on the foregoing (collectively, “Other Oil-Related Investments”).

For convenience and unless otherwise specified, Oil Futures Contracts and Other Oil-Related Investments collectively are referred to as “Oil Interests” in this annual report on Form 10-K.

USCF believes that market arbitrage opportunities will cause daily changes in USL’s share price on the NYSE Arca on a percentage basis to closely track daily changes in USL’s per share NAV on a percentage basis.

USCF further believes that daily changes in prices of the Benchmark Oil Futures Contracts have historically closely tracked the daily changes in spot prices of light, sweet crude oil.

USCF further believes that daily changes in prices of the Benchmark Oil Futures Contracts have historically tracked the daily changes in spot prices of light, sweet crude oil.

USCF believes that the net effect of these relationships will be that the daily changes in the price of USL’s shares on the NYSE Arca on a percentage basis will closely track, the daily changes in the spot price of a barrel of light, sweet crude oil on a percentage basis, plus interest earned on USL’s collateral holdings, less USL’s expenses.

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Exchange 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.

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

In addition to accountability levels and position limits, the NYMEX and ICE Futures also set daily price fluctuation limits on futures contracts.

In addition to accountability levels and position limits, the NYMEX and ICE Futures may also set daily price limits on futures contracts.

The daily price fluctuation limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day’s settlement price.

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In addition, ICE Futures maintains accountability levels, position limits and monitoring authority for its futures contracts for light, sweet crude oil.

If USL and the other Related Public Funds exceed these accountability levels for investments in the futures contracts for light, sweet crude oil, the NYMEX and ICE Futures will monitor such exposure and may ask for further information on their activities including the total size of all positions, investment and trading strategy, and the extent of liquidity resources of USL and the other Related Public Funds.

If USL and the Related Public Funds exceed these accountability levels for investments in the futures contracts for light, sweet crude oil, the NYMEX and ICE Futures will monitor such exposure and may ask for further information on their activities including the total size of all positions, investment and trading strategy, and the extent of liquidity resources of USL and the Related Public Funds.

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, 2023, USL held 938 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, 2022, USL did not exceed the accountability levels imposed by the NYMEX or ICE Futures, however, the aggregated total of certain of the other Related Public Funds did exceed the accountability levels.

For the fiscal year ended December 31, 2023, 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.

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Federal Position Limits

In October 2020, the CFTC adopted a rule to establish 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”).

The limits for futures contracts are currently in effect;

the limits for economically equivalent swaps will become effective in 2023.

Part 150 of the CFTC’s regulations (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 that all market participants must comply with, with certain exemptions.

Certain of the Benchmark Oil Futures Contracts are 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.

Accordingly, the Position Limits Rule could inhibit USL’s ability to invest in the relevant Benchmark Oil Futures Contracts and thereby could negatively impact the ability of USL to meet its investment objective.

Margin for OTC Swaps

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Accordingly, USL will be subject to the variation margin requirements of the Margin Rules for any swaps that it enters into.

However, USL does not have material swaps exposure and, accordingly, USL will not be subject to the initial margin requirements of the Margin Rules.

However, USL does not have material swaps exposure under the Margin Rules and, accordingly, USL will not be subject to the initial margin requirements of the Margin Rules.

Mandatory Trading and Clearing of Swaps

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exchanges to be offered and sold in the United States.

Infectious disease outbreaks like COVID-19 could negatively affect the valuation and performance of USL’s investments.

An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and spread globally.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

COVID-19 resulted in numerous deaths, travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines and the imposition of both local and more widespread “work from home” measures, cancellations, loss of employment, supply chain disruptions, and lower consumer and institutional demand for goods and services, as well as general concern and uncertainty.

The spread of COVID-19 had a material adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross border commercial activity and market sentiment were impacted by the outbreak and government and other measures seeking to contain its spread.

COVID-19 had a material adverse impact on the crude oil markets and oil futures markets to the extent economic activity and the use of crude oil continues to be curtailed, which in turn had a significant adverse effect on the prices of Oil Futures Contracts, including the Benchmark Oil Futures Contracts, and Other Oil-Related Contracts.

Infectious disease outbreaks like COVID-19 may arise in the future and could adversely affect individual issuers and capital markets in ways that cannot necessarily be foreseen.

In addition, actions taken by government and quasi-governmental authorities and regulators throughout the world in response to such an outbreak, including the potential for significant fiscal and monetary policy changes, may affect the value, volatility, pricing and liquidity of some investments or other assets, including those held by or invested in by USL.

Public health crises caused by infectious disease outbreaks may exacerbate other pre-existing political, social and economic risks in certain countries or globally and their duration cannot be determined with certainty.

In a rising rate environment, USL may not be able to fully invest at prevailing rates until any current investments in Treasury Bills mature in order to avoid selling those investments at a loss.

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The risk to USL of rising interest rates may be greater in the future due to the end of a long period of historically low rates, the effect of potential monetary policy initiatives, including actions taken by the U.S.

Federal Reserve and other foreign equivalents to curb inflation, and resulting market reaction to those initiatives.

Federal Reserve and other foreign equivalents to curb inflation, and resulting market reactions to those initiatives.

When interest rates fall, USL may be required to reinvest the proceeds from the sale, redemption or early prepayment of a Treasury Bill or money market security at a lower interest rate.

USL may lose money by investing in government money market funds.

USL may potentially lose money by investing in government money market funds.

USL invests in government money market funds.

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.

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

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

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The average price of the Benchmark Oil Futures Contracts started the year at $79.18 per barrel.

The high of the year was on June 8,2022 when the average price reached $107.78 per barrel.

The average low for the year was on December 9, 2022, which was $71.64 per barrel.

The year ended with the average price of the Benchmark Oil Futures Contracts at $79.18 per barrel, an increase of approximately 9.36% over the year.

USL’s per share NAV began the year at $27.81 and ended the year at $35.45 on December 31, 2022, increase of approximately 27.47% over the year.

The average Benchmark Oil Futures Contracts prices listed above began with the February 2022 to January 2023 contracts and ended with the February 2023 to January 2024 contracts.

The increase of approximately 9.36% on the average price of the Benchmark Oil Futures Contracts listed above is a hypothetical return only and would not actually be realized by an investor holding Oil Futures Contracts.

The high of the year was on September 27, 2023 when the average price reached $85.20 per barrel.

The average low for the year was on June 12, 2023, which was $66.31 per barrel.

The year ended with the average price of the Benchmark Oil Futures Contracts at $71.39 per barrel, a decrease of approximately (9.84)% over the year.

USL’s per share NAV began the year at $35.45 and ended the year at $35.23 on December 31, 2023, decrease of approximately (0.62)% over the year.

The average Benchmark Oil Futures Contracts prices listed above began with the February 2023 to January 2024 contracts and ended with the December 2023 to January 2025 contracts.

The decrease of approximately (9.84)% 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, 2022, the crude oil futures market experienced states of both contango and backwardation.

During the year ended December 31, 2023, the crude oil futures market experienced states of both mild contango and strong 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.

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As of December 31, 2023, USL had issued 53,000,000 shares, 1,900,000 of which were outstanding.

As of December 31, 2022, there were 258,600,000 shares registered but not yet issued.

USL has registered 311,000,000 shares since inception.

On April 28, 2023, the SEC declared effective a registration statement filed by USL that registered an unlimited number of shares.

As a result, USL has an unlimited number of shares that can be issued in the form of Creation Baskets.

More shares may have been issued by USL than are outstanding due to the redemption of shares.

Unlike funds that are registered under the 1940 Act, shares that have been redeemed by USL cannot be resold by USL.

As a result, USL contemplates that additional offerings of its shares may be registered with the SEC in the future in anticipation of additional issuances and redemptions.

As of December 31, 2023, USL had the following Authorized Participants:

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Total commissions as annualized percentage of average total net assets

Commissions accrued as a result of rebalancing

Percentage of commissions accrued as a result of rebalancing

Commissions accrued as a result of creation and redemption activity

Percentage of commissions accrued as a result of creation and redemption activity

Portfolio Expenses.

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The fee is accrued daily and paid monthly.

The increase in the per share NAV for the year ended December 31, 2022, compared to the year ended December 31, 2021, 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.

The decrease in the per share NAV for the year ended December 31, 2023, compared to the year ended December 31, 2022, 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.

Average interest rates earned on short-term investments held by USL, including cash, cash equivalents and Treasuries, were higher during the year ended December 31, 2023, compared to the year ended December 31, 2022.

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To the degree that the aggregate yield is higher, the net expense ratio, inclusive of income, will be lower.

The decrease in total fees and other expenses excluding management fees for the year ended December 31, 2022, compared to the year ended December 31, 2021 was due primarily to a decrease in professional fees.

The decrease in total fees and other expenses excluding management fees for the year ended December 31, 2023, compared to the year ended December 31, 2022, was due primarily to an decrease in professional fees.

The decrease in total commissions accrued to brokers for the year ended December 31, 2023, compared to the year ended December 31, 2022, was due primarily to a lower number of Oil Futures Contracts being held and traded.

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As an example, if the average daily movement of the average of the prices of the Benchmark Oil Futures Contracts 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).

USL’s portfolio

management goals do not include trying to make the nominal price of USL’s per share NAV equal to the average of the nominal prices of the current Benchmark Oil Futures Contracts or the spot price for light, sweet crude oil.

USL’s portfolio management goals do not include trying to make the nominal price of USL’s per share NAV equal to the average of the nominal prices of the current Benchmark Oil Futures Contracts or the spot price for light, sweet crude oil.

USCF believes that it is not practical to manage the portfolio to achieve such an investment goal when investing in Oil Futures Contracts and Other Oil-Related Investments.

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The average daily difference was 0% (or (0.0) 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 following two graphs demonstrate the correlation between the changes in USL’s NAV and the changes in the Benchmark Oil Futures Contracts.

The first graph exhibits the daily changes in the last 30-valuation days ended December 31, 2022.

The second graph measures monthly changes since December 31, 2017 through December 31, 2022.

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

The first chart below shows the daily movement of USL’s per share NAV versus the daily movement of the Benchmark Oil Futures Contracts for the 30 valuation day period ended December 31, 2023, the last trading day in December.

The second chart below shows the monthly total returns of USL as compared to the monthly value of the Benchmark Oil Futures Contracts for the five years ended December 31, 2023.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

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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 $35.24 as of December 31, 2022, for a total return over the relevant time period of 26.72%.

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.

The difference between the actual per share NAV total return of USL of 27.47% and the expected total return based on the Benchmark Oil Futures Contracts of 26.72% was a difference over the time period of 0.75%, which is to say that USL’s actual total return outperformed 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.

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 three factors that typically have impacted or are most likely to impact USL’s ability to accurately track its Benchmark Oil Futures Contracts in addition to the foregoing.

First, USL may buy or sell its holdings in the then current Benchmark Oil Futures Contracts at a price other than the closing settlement price of that contract on the day during which USL executes the trade.

In that case, USL may pay a price that is higher, or lower, than that of the Benchmark Oil Futures Contracts, which could cause the changes in the daily per share NAV of USL to either be too high or too low relative to the daily changes in the average price of the Benchmark Oil Futures Contracts.

In that case, USL may pay a price that is higher, or lower, than the closing settlement price of the Benchmark Oil Futures Contracts, which could cause the changes in the daily per share NAV of USL to either be too high or too low relative to the daily changes in the average price of the Benchmark Oil Futures Contracts.

During the year ended December 31, 2023, USCF attempted to minimize the effect of these transactions by seeking to execute its purchase or sale of the Benchmark Oil Futures Contracts at, or as close as possible to, the end of the day settlement price.

However, it may not always be possible for USL to obtain the closing settlement price and there is no assurance that failure to obtain the closing settlement price in the future will not adversely impact USL’s attempt to track the Benchmark Oil Futures Contracts.

However, it may not always be possible for USL to obtain the settlement price and there is no assurance that failure to obtain the closing settlement price in the future will not adversely impact USL’s attempt to track the Benchmark Oil Futures Contracts.

Second, USL 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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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 rise over the near future from historical lows.

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

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

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During the year ended December 31, 2023, USL did not hold any Other Oil-Related Investments.

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.

If USL increases in size, and due to its obligations to comply with market conditions, regulatory limits, and risk mitigation measures imposed by its FCMs, 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.

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Over time, if contango remained constant, this difference between the spot price and the futures contract price would continue to increase.

The chart below compares the daily price of the near month crude oil futures contract to the price of 13 th month crude oil futures contract (i.e., a contract one year forward) over the last 10 years.

The chart below compares the daily price of the near month crude oil futures contract to the price of the 13 th month crude oil futures contract (i.e., a contract one year forward) over the last 10 years.

When the price of the near month futures contract is higher than the price of the 13 th month futures contract, the market would be described as being in backwardation.

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Historically, the crude oil futures markets have experienced periods of contango and backwardation, with backwardation being in place somewhat less often than contango since oil futures trading started in 1983.

Following the global financial crisis in the fourth quarter of 2008, the crude oil market moved into contango and remained in contango for a period of several years.

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.

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.

However, at the end of November 2014,

global crude oil inventories grew rapidly after the Organization of Petroleum Exporting Countries (“OPEC”) voted to defend its market share against U.S.

shale-oil producers, resulting in another period during which the crude oil market remained primarily in contango.

This period of contango continued through December 31, 2017.

Declining global crude oil inventories caused the market to flip into backwardation at the beginning of 2018 through late October 2018, at which point ongoing supply growth in the U.S., combined with increased OPEC production, once again led market participants to fear another global glut of crude oil.

The crude oil market was primarily in contango the first half of 2019 and in backwardation during the second half of 2019.

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

Following the global financial crisis in the fourth quarter of 2008, the crude oil market moved into contango and remained primarily in contango until 2013.

In late 2014, global crude oil inventories grew rapidly after OPEC voted to defend its market share against U.S.

shale-oil producers, resulting in another multi-year period during which the crude oil market remained primarily in contango.

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 disputes among oil producing countries over the potential limits on the production of crude oil, and a corresponding collapse in demand for crude oil and a lack of on-land storage for crude oil.

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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Eventually, the United States, OPEC, Russia, and other oil producers around the world agreed to a historic 9.7 million barrel per day cut to crude supply.

The supply cut along with the partial reopening of economies during the third quarter of 2020 reduced some of the unprecedented volatility oil markets experienced in the spring of 2020.

Likewise, contango returned to moderate levels in May 2020.

During the year 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.

The supply cut along with the partial reopening of economies during the third quarter of 2020 reduced some of the unprecedented volatility that oil markets experienced in the Spring of 2020.

Likewise, contango returned to moderate levels in May of 2020.

During the fiscal year ended December 31, 2023, crude oil futures were in a state of contango 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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During the year ended December 31, 2023, the average price of the Benchmark Oil Futures Contracts traded in a range between $66.31 to $85.21.

The the average price of the Benchmark Oil Futures Contracts increased 9.37% from December 31, 2021 through December 31, 2022 finishing the quarter at $79.18.

The average price of the Benchmark Oil Futures Contracts decreased (9.84)% from the end of 2022 through December 31, 2023 finishing the quarter at $71.39.

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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Bullish fundamentals for crude oil prices were in place when Russia invaded Ukraine in February of 2022, causing the United States and other countries and certain international organizations to impose broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response.

The war in Ukraine, sanctions and the corresponding disruption in the supply of Russian oil, have resulted in significant volatility in the oil markets, particularly in early March when WTI crude oil briefly rose to over $123.70 per barrel on March 8, 2022 then fell back to $95.04 per barrel on March 16, 2022, before rising and the falling again to end the first quarter of 2022 at $100.28 per barrel.

A bullish trend for crude oil emerged from mid-April through early June 2022 when WTI crude oil again topped $120 per barrel before, once again, giving up gains to end the fourth quarter at $80.26.

During the fourth quarter of 2022, crude oil prices exhibited multiple reversals, in contrast to strong gains during the first half of the year and a steady decline during the third quarter of 2022.

In 2022, U.S.

production rose to a peak of 12.2 mbd while OPEC production peaked at 29.95 mbd.

Despite increased demand and tighter supply (the U.S., Russia, and OPEC have still not returned to pre-pandemic

production levels), bearish factors weighed on crude prices during the second half of 2022, including a record drawdown in the United States Strategic Petroleum Reserve, OPEC supply cuts, consumer responses to inflation, rising interest rates, a strong dollar, and concerns about global economic growth.

These factors continue to affect crude prices.

Conversely, the ongoing demand recovery for crude oil during a time when supply is lower could lead to higher prices over time.

Supply constraints, worker shortages, infrastructure and manufacturing energy usage, the war in Ukraine, and other geopolitical tensions, are factors that could contribute to future increases in crude oil prices.

Between competing bullish and bearish factors, crude could stay range bound or could exhibit significant movement up or down over the next few quarters.

The war in Ukraine and the potential for further supply disruptions and sanctions could lead to further volatility.

However, if a resolution to the conflict were to occur, volatility could decrease and prices could decline somewhat in a short period of time.

Conversely, crude oil prices may be highly reactive to developments as global buyers and sellers of crude reposition their relationships.

The war in Russia – Ukraine war, sanctions and the corresponding disruption in the supply of Russian oil, have resulted in significant volatility in the oil markets, particularly in early March when WTI crude oil briefly rose to over $123.70 per barrel on March 8, 2022 then fell back to $95.04 per barrel on March 16, 2022, before rising and the falling again to end the first quarter of 2022 at $100.28 per barrel.

A bullish trend for crude oil emerged from mid-April through early June 2022 when WTI crude oil again topped $120 per barrel before, once again, giving up gains to end the fourth quarter of 2022 at $80.26.

Crude oil prices struggled to find direction during the first half of 2023 with seventeen notable price reversals, most of which exceeded $5.

Prices rose dramatically in the third quarter, from approximately $70 to over $90.

This strong bull market completely reversed in the fourth quarter and by December crude had plunged back to the $70 to $75 range.

crude oil production growth accelerated in late July and rose until the end of the year, finally surpassing pre-pandemic levels and reaching a record of 13.3 mbd in December.

Global crude oil supply rose above demand during the fourth quarter of 2023.

Russia and OPEC have still not returned to pre-pandemic production levels.

OPEC has fiercely supported prices with voluntary cuts by and production quotas on member nations over the last several years.

However, the November 2023 OPEC meeting was tumultuous and left the market uncertain of the cartel's future commitment to cuts, despite an extension of voluntary cuts and expansion of collective curbs that amounted to 2.2 mbd until March 2024.

Looking ahead, if OPEC's strategic focus shifts from price support to market share defense, prices could come under further pressure.

Conversely, demand for crude oil has slowly increased since the onset of the pandemic in 2020.

According to the U.S.

Department of Energy, crude oil consumption reached an all-time high at the end of 2023 and is expected to continue increasing in 2024.

However, growth forecasts from the U.S.

Energy Information Administration (EIA) and the International Energy Agency (IEA) have declined from more optimistic projections earlier in 2023.

Nevertheless, ongoing demand growth during a time when OPEC continues to restrain supply could lead to stable or higher prices over time.

Supply constraints, worker shortages, infrastructure and manufacturing energy usage, the Russia-Ukraine war, the terror attacks by Hamas on Israel and ensuing conflict in the Middle East, and other geopolitical tensions, political unrest, and attacks or threats of attack by terrorists, are other factors that could contribute to future increases in crude oil prices.

Conversely, changes in OPEC policy, further non-OPEC production growth, and any sluggishness in the global economy could weigh on prices.

Geopolitical risk is expected to be particularly high in 2024.

The Russia-Ukraine war and Middle East conflict have the potential to create further supply disruptions and sanctions, which could lead to further volatility.

However, if a resolution to the conflicts were to occur, volatility could decrease and prices could decline somewhat in a short period of time.

Crude oil prices may also be highly reactive to developments as global buyers and sellers of crude reposition their relationships.

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

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During the year ended December 31, 2023, USL’s expenses did not 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, 2022, USL did not use other assets to pay expenses, post expense waiver.

During the year ended December 31, 2023, USL did not use other assets to pay expenses.

To the extent income exceeds expenses, USL’s NAV will be positively impacted

Although permitted to do so under its Limited Partnership Agreement, USL has not leveraged, and does not intend to leverage, its assets through borrowings or otherwise, and makes its investments accordingly.

Consistent with the foregoing, USL’s investment decisions will take into account the need for USL to maintain adequate liquidity to meet its margin and collateral requirements and to avoid, to the extent reasonably possible, USL becoming leveraged.

If the market conditions require it, these risk reduction procedures, including changes to USL’s investments, may occur on short notice.

USL does not and will not borrow money or use debt to satisfy its margin or collateral obligations in respect of its investments, but it could become leveraged if USL were to hold insufficient assets that would allow it to meet not only the current, but also future, margin or collateral obligations required for such investments.

Such a circumstance could occur if USL were to hold assets that have a value of less than zero.

USCF endeavors to have the value of USL’s Treasuries, cash and cash equivalents, whether held by USL or posted as margin or other collateral, at all times approximate the aggregate market value of its obligations under its Oil Futures Contracts and Other Oil-Related Investments.

USL’s investments in Oil Interests may be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons.

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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 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.

In particular, unforeseen circumstances, including, but not limited to, (i) market conditions, regulatory requirements, risk mitigation measures (including those that may be taken by USL, USL’s FCMs, counterparties or other market participants) 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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The market risk associated with USL’s commitments to purchase oil is limited to the aggregate market value of the contracts held.

However, should USL enter into a contractual commitment to sell oil, it would be required

to make delivery of the oil at the contract price, repurchase the contract at prevailing prices or settle in cash.

However, should USL enter into a contractual commitment to sell oil, it would be required to make delivery of the oil at the contract price, repurchase the contract at prevailing prices or settle in cash.

Since there are no limits on the future price of oil, the market risk to USL could be unlimited.

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These FCMs are not allowed to commingle USL’s assets with their other assets.

In addition, the CFTC requires FCMs to hold in a secure account USL’s assets related to foreign Oil Futures Contracts trading.

In the future, USL may purchase OTC swaps see “Item 3.

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

In addition, the CFTC requires FCMs to hold in a secure account USL’s assets related to foreign Oil Futures Contracts.

As of December 31, 2023, USL held cash deposits and investments in Treasuries and money market funds in the amount of $46,802,943 with the custodian and FCMs.

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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 other Related Public Funds, other than BNO, USCI and CPER, pay a licensing fee to the NYMEX.

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.

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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