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Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-02-21 · 380 added, 145 removed, 240 unchanged (69% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the financial statements and the notes thereto of USO included elsewhere in this annual report on Form 10-K.

The following discussion should be read in conjunction with the condensed financial statements and the notes thereto of the United States Oil Fund, LP (“USO’) included elsewhere in this annual report on Form 10-K.

Forward-Looking Information

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This information may involve known and unknown risks, uncertainties and other factors that may cause USO’s actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.

USO 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:

its impact on the global and U.S.

capital markets and the global and U.S.

economy, the length and duration of the COVID-19 outbreak in the United States as well as worldwide and the magnitude of the economic impact of that outbreak, the effect of the COVID-19 pandemic on USO's business prospects, including its ability to achieve its objectives, and the effect of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business.

Forward-looking statements, which involve assumptions and describe USO’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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USO 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 USO assumes no obligation to update any such forward-looking statements.

Although USO 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 USO may make directly to them or through reports that USO 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 USO 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 USO may make directly to them or through reports that USO files in the future with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

USO, 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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“Next month contract” means the first contract traded on the NYMEX due to expire after the near month contract.

USO’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 USO’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 .

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.

USO seeks to achieve its investment objective by investing so that the average daily percentage change in USO'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 Contract over the same period.

As described below, USO is currently unable to pursue its investment objective to the same degree that it has in the past due to market conditions, regulatory limitations imposed on USO, and risk mitigation measures taken by USO's FCM, each as described below.

As a result of these market conditions, regulatory limitations and risk mitigation measures, there is uncertainty as to whether USO will be able to achieve the same level of success as before in meeting its investment objective.

The general partner of USO, 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 and Other Oil-Related Investments.

USO 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 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”).

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 USO’s share price on the NYSE Arca on a percentage basis to closely track daily changes in USO’s per share NAV on a percentage basis.

USCF further believes that daily changes in prices of the Benchmark Oil Futures Contract have historically closely 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 USO’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 USO’s collateral holdings, less USO’s expenses.

As noted above, USO seeks to achieve its investment objective by investing so that the average daily percentage change in USO’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 Contract over the same period.

Historically, USO has achieved its investment objective by primarily investing in the Benchmark Futures Contract and Oil Futures Contracts for light, sweet crude oil traded on NYMEX and ICE Futures with the same maturity month as the Benchmark Futures Contract Certain circumstances could cause and have caused, as discussed below, USO to invest in Oil Futures Contracts other than the Benchmark Oil Futures Contract and may cause USO to invest in Other Oil-Related Investments.

Such circumstances include:

the need to comply with regulatory requirements (including, but not limited to, exchange accountability levels and position limits imposed by NYMEX discussed below);

market conditions (including but not limited to those allowing USO to obtain greater liquidity or to execute transactions with more favorable pricing);

and risk mitigation measures taken by USO's FCM, RBC Capital, and other FCMs that further limit USO and other market participants from investing in particular crude oil futures contracts.

As a result of market and regulatory conditions, including significant market volatility, large numbers of USO shares purchased during a short period of time, and applicable regulatory accountability levels and position limits on oil futures contracts that were imposed on USO in 2020, including as a result of the COVID-19 pandemic and the state of crude oil markets, USO has invested in Oil Futures Contracts (as defined below) in months other than the Benchmark Oil Futures Contract.

The foregoing has impacted the performance of USO and its ability meet its investment objective within as narrow a percentage difference between the average daily percentage change in USO’s NAV for any period of 30 successive valuation days and the average daily percentage change in the price of the Benchmark Oil Futures Contract as it typically has in the past.

USO’s investment in Oil Futures Contracts in months other than the Benchmark Oil Futures Contract, other Oil Futures Contracts and Other-Oil Related Interests (as defined below), is intended to be temporary but may continue indefinitely if the aforementioned market and regulatory conditions do not abate.

Until such time as USO is able to return to investing in the Benchmark Oil Futures Contract, its performance and ability to meet its investment objective will continue to be impacted.

The following chart shows, for the period ending December 31, 2020, the rolling 30-day average difference between USO’s NAV and the Benchmark Oil Futures Contract.

This is measured by subtracting the return of the Benchmark Oil Futures Contract from the return on USO’s NAV for each of the last thirty business days, and then averaging those thirty differences.

The calculation is repeated daily.

In 2020, significant market volatility has occurred and is continuing in the crude oil markets and the oil futures markets.

Such volatility is 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.

These conditions have severely limited USO’s ability to have a substantial portion of its assets invested in the Benchmark Oil Futures Contract and certain other Oil Futures Contracts of the same month, such as cash-settled, but substantially similar, oil futures contracts traded on ICE Futures (the “ICE WTI Contract”).

Specifically, during 2020:

● NYMEX and ICE Futures have imposed accountability levels and position limits on USO’s investments in the Benchmark Oil Futures Contract and the ICE WTI Contract, respectively.

As described in more detail below, the NYMEX ordered USCF, USO and the Related Public Funds (as defined herein) 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 excess of 78,000 long futures contracts, for August 2020 in excess of 50,000 long futures contracts, and for September 2020 in excess of 35,000 long futures contracts.

In addition, the ICE WTI Contract is subject to spot month and all-months-combined position limits established under the European Union’s Market in Financial Instruments Directive, as implemented by the Financial Conduct Authority in the United Kingdom.

ICE Futures also imposes accountability levels and position limits on the ICE WTI Contract.

It can be anticipated that under current market conditions that the foregoing accountability levels and position limits imposed will remain in place and could involve additional Oil Futures Contracts for later months, e.g., those expiring after September of 2020.

See “Accountability Levels, Position Limits and Position Limits and Price Fluctuation Limits” below.

● RBC has taken risk mitigation measures that constrain USO’s ability to invest in the Benchmark Oil Futures Contract and other Oil Futures Contracts.

RBC, which at the time was USO’s only FCM, expressly informed USO that USO may not hold positions in the June Benchmark Oil Futures Contract expiring on May 19, 2020.

At the time it imposed this restriction, RBC continued to trade and clear other Oil Futures Contracts for USO, including in connection with rolls and rebalances of its portfolio.

RBC also advised USO at that time, that, going forward, it may only purchase additional Benchmark Oil Futures Contracts and other Oil Futures Contracts through RBC for rolls and rebalances of USO’s portfolio and not as investments for the proceeds of new Creation Baskets.

The limits on positions imposed by RBC on holdings in USO’s portfolio apply regardless of whether the Oil Futures Contracts purchased would be within the accountability levels and position limits permitted by NYMEX and ICE.

has since informed USO that USO may resume repurchasing Oil Futures Contracts for investment of the proceeds from Creation Baskets.

● On May 28, 2020, USO entered into an agreement with RCG, to become an additional FCM for USO, on June 5, 2020, USO entered into an agreement with MCM to become an additional FCM for USO, and, on December 3, 2020, USO entered into an agreement with MFUSA to become an additional FCM for USO.

Neither RCG nor MCM has precluded USO from purchasing, holding, or reinvesting the proceeds from the purchases of Creation Baskets in Oil Futures Contracts, including the Benchmark Oil Futures Contract.

However, limits could be imposed by any FCM that, coupled with the risk measures already taken by RBC, would continue to limit USO’s ability to have a substantial portion of its assets invested in the Benchmark Oil Futures Contract.

USO cannot predict with any certainty when and whether RBC will remove its limitations on holding certain positions in Oil Future Contracts, or whether, or to what extent, any such limits may be imposed by any other FCM in the future.

USO is in ongoing discussions with other FCMs and it cannot predict when it will enter into such agreements.

● A large number of USO shares were purchased during a relatively short period of time in March and April 2020.

These events have severely limited USO’s current ability to have a substantial portion of its assets invested in the Benchmark Oil Futures Contract and other Oil Futures Contracts.

Accordingly, and because such factors have continued to evolve, USO has had to invest in other permitted Oil Futures Contracts and has had to more frequently rebalance and adjust the types of holdings in its portfolio than in the past.

In addition, the current limitations being imposed by the exchanges and RBC will limit USO’s ability to invest the proceeds of the purchases of Creation Baskets in Oil Futures Contracts.

As a result, when USO offers to sell Creation Baskets, USO may be limited in its ability to invest in Oil Futures Contracts, including the Benchmark Oil Futures Contract, and may be required to invest in other permitted investments including Other Oil-Related Interests, and may hold larger amounts of Treasuries, cash and cash equivalents, which will further impair USO’s ability to meet its investment objective.

USO has had the ability to invest in Oil Futures Contracts beyond the Benchmark Oil Futures Contract and in Other Oil-Related Investments but, until recently, USO’s need to exercise its discretion in making such investments has been limited.

Current circumstances, including market conditions and evolving regulatory requirements and evolving FCM risk mitigation measures, require USO to exercise greater discretion in investing than in the past.

The parameters for the decision-making regarding the permitted investments USO will hold and the intended order of priority it will consider in selecting investments to be held in USO’s portfolio are set forth and discussed in greater detail below.

The application of the below parameters requires USO to exercise its discretion.

If, due to regulatory requirements, risk mitigation measures, market conditions, liquidity requirements or other factors, USO is not able to invest in accordance with such parameters and the intended order of priority, such methodology may change.

Accordingly, for the foreseeable future, to address and comply with the market conditions, regulatory requirements and other factors that have influenced, and will continue to influence, its investment decisions, USO intends to buy or sell the following permitted investments taking into account the order, or waterfall, set forth below when USO increases or decreases either its portfolio overall or its holdings of particular investments:

The current or front month (“first month”) Oil Futures Contracts based on the price of the light, sweet crude oil known as West Texas Intermediate (“WTI”) or, which are priced off of the oil futures contracts based on WTI as traded on the NYMEX including the Benchmark Oil Futures Contracts and the ICE WTI Contract (“WTI Oil Futures Contracts”);

The first month, the next or following month (“second month”, with months thereafter 2.

being numerically designated, i.e., the third month, the fourth month, the fifth month, etc.) and the third month WTI Oil Futures Contracts;

The first through the sixth month WTI Oil Futures Contracts, plus the next nearest June WTI Oil Futures Contracts or the next nearest December WTI Oil Futures Contracts that is not included in the first through sixth months;

The first through the twelfth month WTI Oil Futures Contracts;

The first through the twelfth month WTI Oil Futures Contracts plus the second through thirteenth month Oil Futures Contracts based on Brent Crude Oil traded on ICE Futures (“Brent Oil Futures Contracts”);

The first through the twelfth month WTI Oil Futures Contracts Months plus the second through thirteenth month Brent Oil Futures Contracts plus the first through the twelfth month Oil Futures Contracts based on Ultra Low Sulfur Diesel Oil Futures Contract traded on NYMEX (“USDL Oil Futures Contract”);

The first through the twelfth month WTI Oil Futures Contracts plus the second through thirteenth month Brent Oil Futures Contracts plus the first through the twelfth month USDL Oil Futures Contracts plus the first through the twelfth month RBOB Gasoline Oil Futures Contracts (“Gasoline Futures Contract”);

USO may also utilize the Oil Futures Contracts based on WTI, WTI Oil Futures Contacts or other types of crude oil traded on the Dubai, Singapore, and Houston exchanges, if and when these contracts reach sufficient scale and liquidity to meaningfully contribute to USO’s investment objective, in addition to the foregoing investments;

then, finally,

Other Oil-Related Investments, in addition to the foregoing investments.

If, due to regulatory requirements, risk mitigation measures, market conditions, liquidity requirements or other factors, USO is not available to invest in a particular month contract described above, then it will adjust the methodology incrementally beginning from the nearest month contract available to it that it is reasonable or feasible to hold in light of such factors.

If USO uses OTC swaps or other instruments, those OTC swaps or instruments would also provide exposure to one or more of the same above-described permitted investments in varying months or contracts.

USO also anticipates that to the extent it invests in Oil Futures Contracts other than WTI Oil Futures Contacts) and Other Oil- Related Investments, it may enter into various non-exchange-traded derivative contracts to hedge the short-term price movements of such Oil Futures Contracts and Other Oil-Related Investments against the current Benchmark Oil Futures Contract.

The progression from one stage of permitted investments described in the above waterfall to the next stage, including the specific target weights for the particular portfolio investments to be held by USO, will take into account, to the extent applicable, the relative levels of open interest, position limits, and other factors.

The specific permitted investments and the identified target weights for such investments, consistent with progression from one stage of the above described waterfall to the next stage, will be published on the website the day before the start of (i) any monthly roll/rebalance period for the end of such roll/rebalance period, and (ii) any rebalancing to be done outside of the monthly roll period due to market conditions, regulatory requirements and other factors described herein.

In extreme circumstances, changes may need to be made intraday.

In such circumstances, the changes will be published on the website at the end of the day.

USO will attempt to execute rebalances required over several days to minimize market impact.

However, it may be necessary to execute these risk measures rapidly and with minimal notice.

Published portfolio changes will be implemented by USO over the course of the roll/rebalance period as indicated on the website or over the course of another day or period with respect to a particular change outside of the roll.

USO will progress through the stages of the above describe waterfall of permitted investments as it approaches regulatory or other limits or as necessary to address market conditions, or other factors, including additional investments in USO, requiring consideration of particular levels of the waterfall.

Generally, USO will invest in each stage of the waterfall in the order described above.

However, USO, in its sole discretion, may proceed to invest in a further stage of the waterfall (i.e., skipping over a particular stage) if it determines it may exceed position limits in the immediately following stage of the above waterfall within the next month.

The investment intention announced by USO could change as a result of any or all of the following:

evolving market conditions, a change in regulator accountability levels and position limits imposed on USO with respect to its investment in Oil Futures Contracts, additional or different risk mitigation measures taken by market participants, generally, including USO, with respect to USO acquiring additional Oil Futures contracts, or USO selling additional shares USO’s ability to invest in the Benchmark Oil Futures Contract could be limited by any of these occurrences.

In addition, while determining the appropriate investments for USO’s portfolio in accordance with its current intention, or to address the foregoing changes in market conditions, regulatory requirements or risk mitigation measures, USO may need to hold significant portions of its portfolio in cash beyond what it has historically held in order to satisfy potential margin requirements.

USCF may not be able to fully invest USO’s assets in Benchmark Oil Futures Contracts having an aggregate notional amount exactly equal to USO’s NAV.

For example, as standardized contracts, the Benchmark Oil Futures Contracts are for a specified amount of a particular commodity, and USO’s NAV and the proceeds from the sale of a Creation Basket are unlikely to be an exact multiple of the amounts of those contracts.

As a result, in such circumstances, USO may be better able to achieve the exact amount of exposure to changes in price of the Benchmark Oil Futures Contract through the use of Other Oil-Related Investments, such as OTC contracts that have better correlation with changes in price of the Benchmark Oil Futures Contract.

USCF does not anticipate letting USO’s Oil Futures Contracts expire and taking delivery of the underlying commodity.

Instead, USCF will close existing positions, e.g., when it changes the Benchmark Oil Futures Contracts or Other Oil-Related Investments or it otherwise

determines it would be appropriate to do so and reinvests the proceeds in new Oil Futures Contracts or Other Oil-Related Investments.

Positions may also be closed out to meet orders for Redemption Baskets and in such case proceeds for such baskets will not be reinvested.

While it is USO’s expectation that at some point in the future it will be able to return to primarily investing in the Benchmark Oil Futures Contract, there can be no guarantee of when, if ever, that will occur.

In addition, because of the limitations being imposed on USO by its regulators and its FCMs, USO may be limited in investing in other Oil futures Contracts in addition to the Benchmark Oil Futures Contract.

These limitations would apply even if USO were to receive and accept request for Redemption Baskets lowering its current holdings in Oil Futures Contracts below the limits now being imposed on it.

The foregoing could limit the ability of USO (i) to reallocate its investments to more favorably meet its investment objective or (ii) in connection with the purchase of Creation Baskets, to invest the proceeds of such purchases in Oil Futures Contracts.

As a result, investors in USO should expect USO’s ability to invest in the Benchmark Oil Futures Contract and other Oil Futures Contracts to continue to be limited and USO may be required to invest in Other Oil-Related Interests.

As a result, there will be continued wider deviations between the performance of USO’s investments and the Benchmark Oil Futures Contract, and that changes in USO’s share price may not be able to track changes in the price of the Benchmark Oil Futures Contract at the same favorable levels as before or within the range of its investment objective.

The inability to closely track the Benchmark Oil Futures Contract and, as described in this annual report on Form 10-K, the changes in its portfolio of investments and the impact of higher levels of contango, will impact the performance of USO and the value of its shares.

USO has not leveraged, and does not intend to leverage, its assets through borrowings or otherwise, and makes its investments accordingly.

Consistent with the foregoing, USO’s announced investment intentions, and any changes thereto, will take into account the need for USO to make permitted investments that also allow it to maintain adequate liquidity to meet its margin and collateral requirements and to avoid, to the extent reasonably possible, USO becoming leveraged.

If market conditions require it, these risk reduction procedures may occur on short notice if they occur other than during a roll or rebalance period.

Regulatory Disclosure

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 USO is not) may hold, own or control.

These levels and position limits apply to the futures contracts that USO 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.

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.

Once the daily price fluctuation limit has been reached in a particular futures contract, no trades may be made at a price beyond that limit.

The accountability levels for the Benchmark Oil Futures Contract and other Oil Futures Contracts traded on U.S.-based futures exchanges, such as the NYMEX, are not a fixed ceiling, but rather a threshold above which the NYMEX may exercise greater scrutiny and control over an investor’s positions.

The current accountability level for investments for any one month in the Benchmark Oil Futures Contract is 10,000 contracts.

In addition, the NYMEX imposes an accountability level for all months of 20,000 net futures contracts for light, sweet crude oil.

In addition, the ICE Futures maintains the same accountability levels, position limits and monitoring authority for its light, sweet crude oil contract as the NYMEX.

If USO 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 USO and the Related Public Funds.

If deemed necessary by the NYMEX and/or ICE Futures, USO could be ordered to reduce its Crude Oil Futures CL contracts to below the 10,000 single month and/or 20,000 all month accountability level.

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, USO 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 April 23 CME Letter ordered USCF, USO 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.

As of December 31, 2020, USO held 74,708 NYMEX WTI Crude Oil Futures CL contracts and did not hold any ICE WTI Crude Oil Futures contracts.

USO exceeded accountability levels of the NYMEX during the year ended December 31, 2020, including when it held a maximum of 234,415 Crude Oil Futures CL contracts, on the NYMEX, exceeding the “any” month limit.

Additionally, USO exceeded accountability levels imposed by the ICE Futures for the year ended December 31, 2020, including when it held a maximum of 58,488 Crude Oil Futures CL contracts, on the ICE, exceeding the "any"

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.

In addition to accountability levels and position limits that may apply at any time, the NYMEX and ICE Futures impose position limits on contracts held in the last few days of trading in the near month contract to expire.

Commencing with the monthly roll that occurred in May 2020, USO’s positions in Oil Futures Contracts and Other Oil Related Investments roll over a ten-day period, whereas previously USO’s positions would roll over a four-day period.

As of May 1, 2020, the type and percentages of investments to be held by USO at the end of the monthly roll period as well as going forward, including for any rebalances, is published on its website www.uscfinvestments.com.

For the year ended December 31, 2020, USO did not exceed any position limits imposed by the NYMEX but did exceed position limits imposed by ICE Futures during the period of April 21 to April 23, 2020.

However, no action was taken by ICE Futures as a result.

The April 23 CME Letter, discussed above, ordered USCF, USO 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.

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

Due to evolving market conditions, a change in regulator accountability levels and position limits imposed on USO with respect to its investment in Oil Futures Contracts as discussed in the CME Letters, remaining within relevant accountability levels and position limits, and, additional or different risk mitigation measures taken by USO’s FCM with respect to USO acquiring additional Oil Futures contracts, USO has invested and intends to invest in other permitted investments, beyond the Benchmark Oil Futures Contract.

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

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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 the Position Limits Rule.

The Position Limits Rule establishes federal position limits for 25 core referenced futures contracts (comprised of agricultural, energy and metals futures contracts), futures and options linked to the core referenced futures contracts, and swaps that are economically equivalent to the core referenced futures contracts.

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

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

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 percent 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”).

The Final Margin Rules will subject non-cleared swaps and non-cleared security-based swaps between Covered Swap Entities and Swap Entities, and between Covered Swap Entities and financial end users that have material swaps exposure (i.e., an average daily aggregate notional of $8 billion or more in non-cleared swaps calculated in accordance with the Final Margin Rules), to a mandatory two-way minimum initial margin requirement.

The minimum amount of the initial margin required to be posted or collected would be either the amount calculated by the Covered Swap Entity using a standardized schedule set forth as an appendix to the Final Margin Rules, which provides the gross initial margin (as a percentage of total notional exposure) for certain asset classes, or an internal margin model of the Covered Swap Entity conforming to the requirements of the Final Margin Rules that is approved by the Agency having jurisdiction over the particular Covered Swap Entity.

The Final Margin Rules specify the types of collateral that may be posted or collected as initial margin for non-cleared swaps and non-cleared security-based swaps with financial end users (generally cash, certain government, government-sponsored enterprise securities, certain liquid debt, certain equity securities, certain eligible publicly traded debt, and gold);

and sets forth haircuts for certain collateral asset classes.

The Final Margin Rules require minimum variation margin to be exchanged daily for non-cleared swaps and non-cleared security-based swaps between Covered Swap Entities and Swap Entities and between Covered Swap Entities and all financial end-users (without regard to the swaps exposure of the particular financial end-user).

The minimum variation margin amount is the daily mark-to-market change in the value of the swap to the Covered Swap Entity, taking into account variation margin previously posted or collected.

For non-cleared swaps and security-based swaps between Covered Swap Entities and financial end-users, variation margin may be posted or collected in cash or non-cash collateral that is considered eligible for initial margin purposes.

Variation margin is not subject to segregation with an independent, third-party custodian, and may, if permitted by contract, be rehypothecated.

The initial margin requirements of the Final Margin Rules are being phased in over time, and the variation margin requirements of the Final Margin Rules are currently in effect.

USO is not a Covered Swap Entity under the Final Margin Rules, but it is a financial end-user.

Accordingly, USO is currently subject to the variation margin requirements of the Final Margin Rules.

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

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) required the CFTC and the SEC to adopt their own margin rules to apply to a limited number of registered swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants that are not subject to the jurisdiction of one of the Agencies.

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’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.

USO does not currently engage in security-based swap transactions and, therefore, the SEC’s margin rules are not expected to apply to USO.

Mandatory Trading and Clearing of Swaps

CFTC regulations require that certain swap transactions be executed on organized exchanges or “swap execution facilities” and cleared through regulated clearing organizations (“derivative clearing organizations” (“DCOs”)), if the CFTC mandates the central clearing of a particular class of swap and such swap is “made available to trade” on a swap execution facility.

Currently, swap dealers, major swap participants, commodity pools, certain private funds and entities predominantly engaged in activities that are financial in nature are required to execute on a swap execution facility, and clear, certain interest rate swaps and index-based credit default swaps.

As a result, if USO 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 USO 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 USO’s FCM.

Other Requirements for Swaps

In addition to the margin requirements described above, swaps that are not required to be cleared and executed on a SEF but that are executed bilaterally are also subject to various requirements pursuant to CFTC regulations, including, among other things, reporting and recordkeeping requirements and, depending on the status of the counterparties, trading documentation requirements and dispute resolution requirements.

Derivatives Regulations in Non-U.S.

Jurisdictions

In addition to U.S.

laws and regulations, USO may be subject to non-U.S.

derivatives laws and regulations if it engages in futures and/or swap transactions with non-U.S.

For example, USO may be impacted by European laws and regulations to the extent that it engages in futures transactions on European exchanges or derivatives transactions with European entities.

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.

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”).

While the rule applies only to MMFs, it may indirectly affect institutional investors such as USO.

A portion of USO’s assets that are not used for margin or collateral in the Futures Contracts currently are invested in government MMFs.

USO does not hold any non-government MMFs and does not anticipate investing in any non-government MMFs.

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

USO 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.

Price Movements

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The price of the Benchmark Oil Futures Contract started the year at $61.06 per barrel.

The high of the year was on April 23, 2019 when the price reached $66.30 per barrel.

The low of the period was the starting price for the period, which was $45.41 per barrel.

The year ended with the Benchmark Oil Futures Contract at $61.06 per barrel, an increase of approximately 34.46% over the year.

USO’s per share NAV began the year at $9.59 and ended the year at $12.78 on December 31, 2019, an increase of approximately 33.26% over the year.

USO’s per share NAV reached its high for the year on April 23, 2019 at $13.79 and its low for the period was at the beginning of the period when it was $9.59.

The high of the year was on January 6, 2020 when the price reached $63.27 per barrel.

The low for the year was on April 21, 2020, which was $11.57 per barrel.

The year ended with the Benchmark Oil Futures Contract at $48.52 per barrel, a decrease of approximately (20.54)% over the year.

USO’s per share NAV began the year at $102.27 * and ended the year at $33.07 on December 31, 2020, a decrease of approximately (67.66)% over the year.

The Benchmark Oil Futures Contract prices listed above began with the February 2020 contracts and ended with the February 2021 contracts.

The increase of approximately 34.46% on the Benchmark Oil Futures Contract listed above is a hypothetical return only and could not actually be achieved by an investor holding Oil Futures Contracts.

The decrease of approximately (20.54)% on the Benchmark Oil Futures Contract 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 USO seeks to track, which are more fully described below in the section titled “Tracking USO's Benchmark.”

* Adjusted to give effect to the reverse share split of 1-for-8 effected on April 28, 2020.

The Condensed Statement of Operations have been adjusted for the periods shown to reflect the 1-for-8 reverse share split on a retroactive basis.

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

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New York time.

The Administrator uses the NYMEX closing price (determined at the earlier of the close of the NYMEX or 2:30 p.m.

USO'S Administrator uses the NYMEX closing price (determined at the earlier of the close of the NYMEX or 2:30 p.m.

New York time) for the contracts held on the NYMEX, but calculates or determines the value of all other USO investments, including ICE Futures contracts or other futures contracts, as of the earlier of the close of the NYSE Arca or 4:00 p.m.

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As a result of the acquisition of the AMEX by NYSE Euronext, USO’s shares ceased trading on the AMEX and commenced trading on the NYSE Arca on November 25, 2008.

Since its initial offering of 17,000,000 shares, USO has registered ten subsequent offerings of its shares:

30,000,000 shares which were registered with the SEC on October 18, 2006, 50,000,000 shares which were registered with the SEC on January 30, 2007, 30,000,000 shares which were registered with the SEC on December 4, 2007, 100,000,000 shares which were registered with the SEC on February 7, 2008, 100,000,000 shares which were registered with the SEC on September 29, 2008, 300,000,000 shares which were registered with the SEC on January 16, 2009, 1,000,000,000 shares which were registered with the SEC on June 29, 2009, 500,000,000 shares which were registered with the SEC on April 28, 2015, 1,000,000,000 shares which were registered with the SEC on February 29, 2016 and 100,000,000 shares which were registered with the SEC on February 27, 2019.

Shares offered by USO in the subsequent offerings were sold for cash at the shares’ per share NAV as described in the applicable prospectus.

As of December 31, 2020, USO had issued 4,644,200,000 shares, 109,623,603 of which were outstanding.

As of December 31, 2020, there were 982,800,000 shares registered but not yet issued.

USO has registered 5,627,000,000 shares since inception.

On April 28, 2020, after the close of trading on the NYSE Arca, USO effected a 1-for-8 reverse share split and post-split shares of USO began trading on April 29, 2020.

As a result of the reverse share split, every eight pre-split shares of USO were automatically exchanged for one post-split share.

Immediately prior to the reverse split, there were 1,482,900,000 shares of USO issued and outstanding, representing a per share NAV of $2.04.

Immediately after the effect of the reverse share split, the number of issued and outstanding shares of USO decreased to 185,362,500, not accounting for fractional shares, and the per share NAV increased to $16.35.

In connection with the reverse share split, the CUSIP number for USO's shares changed to 91232N207.

USO's ticker symbol, "USO,"

remains the same.

The accompanying unaudited condensed financial statements have been adjusted to reflect the effect of the reverse share split on a retroactive basis.

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

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As of December 31, 2020, USO had the following Authorized Participants:

ABN Amro, BNP Paribas Securities Corp., Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities 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, UBS Securities LLC and Virtu Financial BD LLC.

ABN Amro, BNP Paribas Securities Corp., Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Goldman Sachs & Company, JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas Securities LLC, UBS Securities LLC and Virtu Financial BD LLC.

For the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

and for the Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017

For the Year Ended

December 31, 2020

December 31, 2019

December 31, 2017

Per share net asset value, end of year

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1,435,838,329

2,644,791,758

Dividend and interest income earned on Treasuries, cash and/or cash equivalents

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Total fees and other expenses excluding management fees

Fees and expenses related to the registration or offering of additional shares

Fees and expenses related the registration or offering of additional shares

Total commissions accrued to brokers

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

* Adjusted to give effect to the reverse share split of 1-for-8 effected on April 28, 2020.

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, 2019, compared to the year ended December 31, 2018, was due primarily to higher prices for crude oil and the related increase in the value of the Oil Futures Contracts in which USO held and traded;

and the decrease in the per share NAV for the year ended December 31, 2018, compared to the year ended December 31, 2017, was due primarily to lower prices for crude oil and the related decrease in the value of the Oil Futures Contracts in which USO held and traded.

Average interest rates earned on short-term investments held by USO, including cash, cash equivalents and Treasuries, were higher during the year ended December 31, 2019, compared to the year ended December 31, 2018;

and were higher during the year ended December 31, 2018, compared to the year ended December 31, 2017.

As a result, the amount of income earned by USO as a percentage of average daily total net assets was higher during the year ended December 31, 2019, compared to the year ended December 31, 2018;

and was higher during the year ended December 31, 2018 compared to the year ended December 31, 2017.

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, 2019, compared to the year ended December 31, 2018 was due primarily to USO’s smaller size as measured by total net assets;

and the decrease in total fees and other expenses excluding management fees for the year ended December 31, 2018, compared to the year ended December 31, 2017, was due primarily to USO’s smaller size as measured by total net assets.

The decrease in total commissions accrued to brokers for the year ended December 31, 2019, compared to the year ended December 31, 2018, was due primarily to a lower number of Oil Futures Contracts being held and traded;

and the decrease in total commissions accrued to brokers for the year ended December 31, 2018, compared to the year ended December 31, 2017, was due primarily to lower number of Oil Futures Contracts being held and traded.

For the Three Months Ended December 31, 2019 Compared to the Three Months Ended December 31, 2018;

and for the Three Months Ended December 31, 2018 Compared to the Three Months Ended December 31, 2017

For the three

December 31, 2019

December 31, 2018

December 31, 2017

Per share net asset value, end of period

Average daily total net assets

1,270,554,695

1,634,107,826

2,203,766,977

Dividend and interest income earned on Treasuries, cash and/or cash equivalents

Annualized yield based on average daily total net assets

Management fee

Total fees and other expenses excluding management fees

Fees and expenses related to the registration or offering of additional shares

Total commissions accrued to brokers

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

The increase in the per share NAV for the three months ended December 31, 2019, compared to the three months ended December 31, 2018, was due primarily to higher prices for crude oil and the related increase in the value of the Oil Futures Contracts in which USO held and traded;

and the decrease in the per share NAV for the three months ended December 31, 2018, compared to the three months ended December 31, 2017, was due primarily to lower prices for crude oil and the related decrease in the value of the Oil Futures Contracts in which USO held and traded.

Average interest rates earned on short-term investments held by USO, including cash, cash equivalents and Treasuries, were lower during the three months ended December 31, 2019, compared to the three months ended December 31, 2018;

and were higher during the three months ended December 31, 2018, compared to the three months ended December 31, 2017.

As a result, the amount of income earned by USO as a percentage of average daily total net assets was lower during the three months ended December 31, 2019, compared to the three months ended December 31, 2018;

and was higher during the three months ended December 31, 2018 compared to the three months ended December 31, 2017.

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 USO held and traded.

Average interest rates earned on short-term investments held by USO, including cash, cash equivalents and Treasuries, were lower during the year ended December 31, 2020, compared to the year ended December 31, 2019.

As a result, the amount of income earned by USO as a percentage of average daily total net assets was lower during the year ended December 31, 2020, compared to the year ended December 31, 2019.

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

The decrease in total fees and other expenses excluding management fees for the three months ended December 31, 2019, compared to the three months ended December 31, 2018 was due primarily to USO’s smaller size as measured by total net assets;

and the decrease in total fees and other expenses excluding management fees for the three months ended December 31, 2018, compared to the three months ended December 31, 2017, was due primarily to USO’s smaller size as measured by total net assets.

The decrease in total commissions accrued to brokers for the three months ended December 31, 2019, compared to the three months ended December 31, 2018, was due primarily to a lower number of Oil Futures Contracts being held and traded;

and the decrease in total commissions accrued to brokers for the three months ended December 31, 2018, compared to the three months ended December 31, 2017, was due primarily to lower number of futures contracts being held and traded.

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 USO’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.

Tracking USO’s Benchmark

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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.

For the 30-valuation days ended December 31, 2019, the simple average daily change in the Benchmark Oil Futures Contract was 0.201%, while the simple average daily change in the per share NAV of USO over the same time period was 0.205%.

The average daily difference was 0.004% (or 0.4 basis points, where 1 basis point equals 1/100 of 1%).

As a percentage of the daily movement of the Benchmark Oil Futures Contract, the average error in daily tracking by the per share NAV was (2.461)%, meaning that over this time period USO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

A significant portion of the level of USO's relative tracking error as a percentage of the benchmark was due to periods of flat price returns.

The first chart below shows the daily movement of USO’s per share NAV versus the daily movement of the Benchmark Oil Futures Contract for the 30-valuation day period ended December 31, 2019, the last trading day in December.

The second chart below shows the monthly total returns of USO as compared to the monthly value of the Benchmark Oil Futures Contract for the five years ended December 31, 2019.

Since the commencement of the offering of USO’s shares to the public on April 10, 2006 to December 31, 2019, the simple average daily change in the Benchmark Oil Futures Contract was (0.024)%, while the simple average daily change in the per share NAV of USO over the same time period was (0.023)%.

The average daily difference was 0.001% (or 0.1 basis points, where 1 basis point equals 1/100 of 1%).

As a percentage of the daily movement of the Benchmark Oil Futures Contract, the average error in daily tracking by the per share NAV was 0.337%, meaning that over this time period USO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

For the 30-valuation days ended December 31, 2020, the average daily change in the Benchmark Oil Futures Contract was 0.508%, while the average daily change in the per share NAV of USO over the same time period was 0.462%.

The average daily difference was (0.046)% (or (4.6) basis points, where 1 basis point equals 1/100 of 1%), meaning that over this time period USO'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 changes in the Benchmark Oil Futures Contract for the same period was (3.794)%.

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 USO tracks its benchmark.

Since the commencement of the offering of USO’s shares to the public on April 10, 2006 to December 31, 2020, the average daily change in the Benchmark Oil Futures Contract was (0.023)%, while the average daily change in the per share NAV of USO over the same time period was (0.041)%.

The average daily difference was (0.018)% (or (1.8) basis points, where 1 basis point equals 1/100 of 1%), meaning that over this time period USO’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 (0.379)%.

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 USO tracks its benchmark.

The following two graphs demonstrate the correlation between the changes in USO‘s NAV and the changes in the Benchmark Oil Futures Contract.

The first graph exhibits the daily changes in the last 30 valuation days ended December 31, 2020.

The second graph measures monthly changes since December 31, 2015 through December 31, 2020.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

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However, if USO’s daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Oil Futures Contract, USO would have had an estimated per share NAV of $58.31 as of December 31, 2020, for a total return over the relevant time period of (42.97)%.

The difference between the actual per share NAV total return of USO of 33.26% and the expected total return based on the Benchmark Oil Futures Contract of 31.49% was an error over the time period of 1.77%, which is to say that USO’s actual total return outperformed its benchmark by that percentage.

The difference between the actual per share NAV total return of USO of (67.66)% and the expected total return based on the Benchmark Oil Futures Contract of (42.98)% was a difference over the time period of (24.68)%, which is to say that USO’s actual total return underperformed its benchmark by that percentage.

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

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 USO to track slightly lower than daily changes in the price of the Benchmark Oil Futures Contract.

* Adjusted to give effect to the reverse share split of 1-for-8 effected on April 28, 2020 .

By comparison, for the year ended December 31, 2019, the actual total return of USO as measured by changes in its per share NAV was 33.37%.

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However, if USO’s daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Oil Futures Contract, USO would have had an estimated per share NAV of $100.84 as of December 31, 2019, for a total return over the relevant time period of 31.50%.

The difference between the actual per share NAV total return of USO of (20.61)% and the expected total return based on the Benchmark Oil Futures Contract of (21.52)% was an error over the time period of 0.91%, which is to say that USO’s actual total return outperformed its benchmark by that percentage.

The difference between the actual per share NAV total return of USO of 33.37% and the expected total return based on the Benchmark Oil Futures Contract of 31.50% was a difference over the time period of 1.87%, which is to say that USO’s actual total return outperformed its benchmark by that percentage.

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

By comparison, for the year ended December 31, 2017, the actual total return of USO as measured by changes in its per share NAV was 3.16%.

This was based on an initial per share NAV of $11.71 on December 31, 2016 and an ending per share NAV as of December 31, 2017 of $12.08.

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

However, if USO’s daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Oil Futures Contract, USO would have had an estimated per share NAV of $12.07 as of December 31, 2017, for a total return over the relevant time period of 3.07%.

There was no difference between the actual per share NAV total return of USO of 3.16% and the expected total return based on the Benchmark Oil Futures Contract of 3.07%, which is to say that USO’s actual total return performed exactly the same as the benchmark result by that percentage.

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

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

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 USO to track slightly higher than daily changes in the price of the Benchmark Oil Futures Contract.

While it is USO's expectation that at some point in the future it will return to primarily investing in the Benchmark Futures Contract and related ICE Futures contracts or other similar futures contracts of the same tenor based on light, sweet crude oil, there can be no guarantee of when, if ever, that will occur.

As a result, investors in USO should expect that there will be continued deviations between the performance of USO's investments and the Benchmark Futures Contract and that USO may not be able to track the Benchmark Futures Contract or meet its investment objective.

As a result of market conditions and the regulatory response that occurred in March 2020 and thereafter, large numbers of USO shares that were purchased during a short period of time, and regulatory accountability levels and position limits on oil futures contracts that were imposed on USO, and risk mitigation measures imposed by its FCMs, USO invested in Oil Futures Contracts in months other than the Benchmark Oil Futures Contracts.

The foregoing impacted the performance of USO and made it difficult for USO to meet its investment objective, which is for the daily percentage changes in the NAV per share to reflect the daily percentage changes of the spot price of light, sweet crude oil, as measured by the daily percentage changes in the price of Benchmark Oil Futures Contract, plus interest earned on USO's collateral holdings, less USO's expenses.

* Adjusted to give effect to the reverse share split of 1-for-8 effected on April 28, 2020 .

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

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

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

During the year ended December 31, 2019, USCF attempted to minimize the effect of these transactions by seeking to execute its purchase or sale of the Benchmark Oil Futures Contract at, or as close as possible to, the end of the day settlement price.

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

During the year ended December 31, 2020, USCF attempted to minimize the effect of these transactions by seeking to execute its purchase or sale of 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 USO 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 USO’s attempt to track the Benchmark Oil Futures Contract.

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When this income exceeds the level of USO's expenses for its management fee, brokerage commissions and other expenses (including ongoing registration fees, licensing fees and the fees and expenses of the independent directors of USCF), USO will realize a net yield that will tend to cause daily changes in the per share NAV of USO to track slightly higher than daily changes in the Benchmark Oil Futures Contract.

If short-term interest rates rise above the current levels, the level of deviation created by the yield would increase.

If short-term interest rates rise above these levels, the level of deviation created by the yield would increase.

Conversely, if short-term interest rates were to decline, the amount of error created by the yield would decrease.

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 Contract.

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

However, it is anticipated that fees and expenses paid by USO may continue to be lower than interest earned by USO.

As such, USCF anticipates that USO could possibly outperform its benchmark so long as interest earned at least equals or exceeds the fees and expenses paid by USO.

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

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

As such, USCF anticipates that USO could possibly underperform its benchmark so long as interest earned is less than the fees and expenses paid by USO.

Third, USO may hold Other Oil-Related Investments in its portfolio that may fail to closely track the Benchmark Oil Futures Contract’s total return movements.

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During the year ended December 31, 2020, USO did not hold any Other Oil-Related Investments.

If USO increases in size, and due to its obligations to comply with regulatory limits, USO 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 USO increases in size, and due to its obligations to comply with market conditions, regulatory limits, and risk mitigation measures imposed by its FCMs, USO 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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However, at the end of November 2014, global crude oil inventories grew rapidly after 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.

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 from August through December 31, 2019.

Periods of contango or backwardation do not materially impact USO’s investment objective of having the daily percentage changes in its per share NAV track the daily percentage changes in the price of the Benchmark Oil Futures Contract since the impact of backwardation and contango tend to equally impact the daily percentage changes in price of both USO’s shares and the Benchmark Oil Futures Contract.

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.

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.

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

Crude oil prices collapsed in the wake of the COVID-19 demand shock, which reduced global petroleum consumption, and the price war launched by Saudi Arabia at the beginning of March 2020 in response to Russia's unwillingness to participate in extending previously agreed upon supply cuts.

An estimated twenty million barrels a day of crude demand evaporated as a result of quarantines and massive drops in industrial and manufacturing activity.

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.

Prior to 2020, periods of contango or backwardation have not materially impacted USO’s investment objective of having the daily percentage changes in its per share NAV track the daily percentage changes in the price of the Benchmark Oil Futures Contract since the impact of backwardation and contango tended to equally impact the daily percentage changes in price of both USO’s shares and the Benchmark Oil Futures Contract.

It is impossible to predict with any degree of certainty whether backwardation or contango will occur in the future.

It is likely that both conditions will occur during different periods.

Contango may persist for the foreseeable future, potentially at extreme levels at times, as a result of the ongoing uncertainty in the wake of the COVID-19 crisis.

As a result of market and regulatory conditions, including significant market volatility, large numbers of USO shares purchased during a short period of time, and applicable regulatory accountability levels and position limits on oil futures contracts that were imposed on USO, USO invested in Oil Futures Contracts in months other than the Benchmark Oil Futures Contracts.

To approximate its investment objective, USO has chosen from its permitted investments types and amounts of Oil Futures Contracts allowed by its current regulatory requirements and under the risk mitigation efforts of its FCMs and other market participants, including those Oil Futures Contracts with expiration dates for months later than that of the Benchmark Futures Contract.

Continued holdings in these later month contracts may allow USO to experience lesser effects from contango than would be the case if USO’s holdings were primarily in Oil Futures Contracts in the first month or second month.

Likewise, continued holdings in these later month contracts also could cause USO to experience lesser effects from backwardation than would be the case if USO's holdings were primarily in Oil Futures Contracts in the first month or second month.

As a result, investors in USO should expect that there may be deviations between the performance of USO's investments and the Benchmark Futures Contract and that USO may not be able to track the Benchmark Futures Contract or meet its investment objective as closely as it has in the past.

That said, in the fourth quarter of 2020 the average daily difference between the return of USO's NAV and the Benchmark Futures Contract was (0.035)% (or (3.5) basis points).

Crude Oil Market .

During the year ended December 31, 2020, crude oil prices traded in a range between $11.57 to $63.27.

Crude oil rose 34.46% from the end of 2018 through December 31, 2019 finishing the year at $54.07.

Crude prices peaked in April and declined through October as a result of falling global growth forecasts, negative economic news, and persistently declining oil demand growth, all of which were at least partially the result of the ongoing trade wars.

Prices briefly spiked 14.68% following the September 16, 2019 attacks on Saudi oil facilities that knocked out five percent of global daily supply, but quickly fell back on ongoing negative sentiment and economic news.

Prices rose again in the fourth quarter of 2019, as global crude oil and liquid fuels inventories declined slightly, OPEC signaled and delivered further output cuts, the U.S.

and China reached a “Phase One” trade deal, and further geopolitical risks surfaced.

While OPEC has been aggressive about meeting target cuts, continued growth in U.S.

shale production also threatens to oversupply the market relative to demand growth.

All three major energy agencies (OPEC, EIA, IEA) have lowered their 2020 demand growth forecasts.

Should demand continue moderating or turn negative, crude prices would likely fall further.

However, geopolitical risk has increased, while a geopolitical risk premium only briefly materialized in the price of crude.

Further surprise attacks on crude infrastructure or conflicts in the Middle East would likely create volatility to the upside, should such events occur .

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

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

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.

Global demand for crude oil plummeted by as much as 30% in the spring of 2020 as workers around the world stopped driving, airlines cut flight schedules, and companies suspended operations.

Meanwhile, U.S.

crude oil supply reached 13 million barrels per day (mbd), capping a period of almost continuous growth since 2016.

To offset the seemingly unstoppable U.S.

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.

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

Although the members of OPEC+ reached a record-shattering agreement in mid-April of 2020, the implementation of new supply cuts came too late to prevent crude oil prices from plummeting to historic lows, culminating in a drop into negative territory for the May WTI crude oil futures contract on April 20, 2020.

During the second quarter of 2020, the International Energy Agency (IEA) reported that crude oil demand fell an average of 16.4 mbd while global crude oil supply declined by an average of 13.7 mbd.

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.

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

As of June 30, 2020, U.S.

production had dropped over 15%, rapidly falling back to 11 mbd.

Oil producing rigs in the United States fell to 180 from over 670 at the start of the year, a massive decline that will likely see U.S.

supply fall further.

Finally, in late June 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.

First, front month WTI Oil Futures Contract prices dipped below $20 for the first time since 2002 and hit an all-time closing low of $(37.63).

Multiple record-breaking returns occurred between March and May of 2020.

The price of the front month WTI Oil Futures Contract averaged $28 during the second quarter of 2020 compared to $46 during the first quarter of 2020 and $57 during calendar year 2019.

Second, crude oil price volatility went off-the-charts.

For example, the 30-day annualized volatility of front month WTI crude oil futures prices reached 984% in May 2020 after averaging 35% in 2019 and 25% in the first two months of 2020.

(If May crude oil futures had not gone negative on April 20, 2020, volatility would “only” have reached 416%.)

Third, futures curves, which can exhibit conditions known as “contango” and “backwardation” as discussed above, moved into a condition that some market experts referred to as “super contango.” This was a result of extreme bearishness at the front of the futures curve due to rapidly filling storage facilities in the U.S.

and around the world.

Specifically, the price of the front month WTI Oil Futures Contract 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.

previous record.

This divergence caused with different expiration dates to move in different directions.

For example, 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 was (24)%, meaning these contracts were moving in opposite directions.

Fourth, USO, among other market participants, diversified its portfolio away from the front of the futures curve in favor of deferred contract months, as discussed in this Form 10-Q.

The move by USO and other market participants to deferred contract months caused a historic change to relative levels of open interest among the different futures contracts.

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 crud 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 per barrel.

WTI crude oil inventories in the United States fell from a modern record of 541 mbd in June to 493 mbd by the end of 2020.

Meanwhile crude oil production in the United States declined below 10 mbd during the second half of 2020 after peaking at over 13 mbd 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.

Crude 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.

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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, limited correlation with natural gas, and moderate negative correlation with U.S.

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

government bonds.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Correlation Matrix

December 31, 2009 – December 31, 2019*

Large Cap U.S.

Equities (S&P 500)

Bonds (EFFAS U.S.

Correlation Matrix 10 Years

Large Cap US Equities (S&P 500)

US Gov't Bonds (BEUSG4 Index)

Global Equities (FTSE World Index)

Unleaded Gasoline

Diesel-Heating Oil

Bloomberg, NYMEX

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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 to negative correlation with movements with U.S.

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

Government bonds, and natural gas.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Correlation Matrix

12 Months ended December 31, 2019*

Large Cap U.S.

Equities (S&P 500)

Bonds (EFFAS U.S.

Correlation Matrix 1 Year

Large Cap US Equities (S&P 500)

US Gov't Bonds (BEUSG4 Index)

Global Equities (FTSE World Index)

Unleaded Gasoline

Diesel-Heating Oil

Bloomberg, NYMEX

Investors are cautioned that the historical price relationships between crude oil and various other energy commodities, as well as other investment asset classes, as measured by correlation may not be reliable predictors of future price movements and correlation results.

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The correlations between crude oil, natural gas, diesel-heating oil and gasoline are relevant because USCF endeavors to invest USO’s assets in Oil Futures Contracts and Other Oil-Related Investments so that daily changes in percentage terms in USO’s per share NAV correlate as closely as possible with daily changes in percentage terms in the price of the Benchmark Oil Futures Contract.

If certain other fuel-based commodity futures contracts do not closely correlate with the crude-oil futures contract, then their use could lead to greater tracking error.

If certain other fuel-based commodity futures contracts do not closely correlate with the crude-oil futures contract, then their use could lead to

greater tracking error.

As noted above, USCF also believes that the changes in percentage terms in the price of the Benchmark Oil Futures Contract will closely correlate with changes in percentage terms in the spot price of light, sweet crude oil.

For the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

The comparison of the fiscal years ended December 31, 2019 and 2018 can be found in USO's annual report on Form 10-K for the fiscal year ended December 31, 2019 located within Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated by reference herein.

Critical Accounting Policies

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.

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.

USO’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 USO’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.

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

The values which are used by USO 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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A significant portion of USO's NAV is held in cash and cash equivalents that are used as margin and as collateral for its trading in Oil Interests.

The balance of the assets is held in USO's account at its custodian bank and in Treasuries at the FCM.

The balance of the assets is held in USO's account at its custodian bank and in investments in money market funds and Treasuries at the FCMs.

Income received from USO's investments in money market funds and Treasuries is paid to USO.

During the year ended December 31, 2019, USO's expenses did not exceed the income USO earned and the cash earned from the sale of Creation Baskets and the redemption of Redemption Baskets.

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

During the year ended December 31, 2019, USO's expenses did not exceed the income USO earned and the cash earned from the sale of Creation Baskets and the redemption of Redemption Baskets.

To the extent expenses exceed income, USO's NAV will be negatively impacted.

USCF endeavors to have the value of USO's Treasuries, cash and cash equivalents, whether held by USO or posted as margin or other collateral, at all times approximate the aggregate market value of its obligations for its investments in Oil Interests.

Commodity pools' trading positions in futures contracts or other related investments are typically required to be secured by the deposit of margin funds that represent only a small percentage of a futures contract's (or other commodity interest's) entire market value.

While USCF has not and does not intend to leverage USO's assets, it is not prohibited from doing so under the LP Agreement.

Although permitted to do so under its LP Agreement, USO has not and does not intend to leverage its assets and makes its investments accordingly.

Consistent with the foregoing, USO's investments will take into account the need for USO to make permitted investments that also allow it to maintain adequate liquidity to meet its margin and collateral requirements and to avoid, to the extent reasonably possible, USO becoming leveraged.

If market conditions require it, these risk reduction procedures may occur on short notice if they occur other than during a roll or rebalance period.

USO’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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Once the price of a futures contract has increased or decreased by an amount equal to the daily limit, positions in the contracts can neither be taken nor liquidated unless the traders are willing to effect trades at or within the specified daily limit.

Such market conditions could prevent USO from promptly liquidating its positions in Oil Futures Contracts.

Such market conditions could prevent USO from promptly liquidating its positions in Futures Contracts.

During the year ended December 31, 2020, USO did not purchase or liquidate any of its positions while daily limits were in effect;

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Since March 23, 2007, USO has been responsible for expenses relating to:

(i) management fees, (ii) brokerage fees and commissions, (iii) licensing fees for the use of intellectual property, (iv) ongoing registration expenses in connection with offers and sales of its shares subsequent to the initial offering, (v) other expenses, including tax reporting costs, (vi) fees and expenses of the independent directors of USCF and (vii) other extraordinary expenses not in the ordinary course of business, while USCF has been responsible for expenses relating to the fees of USO’s Marketing Agent, Administrator and Custodian and registration expenses relating to the initial offering of shares.

If USCF and USO are unsuccessful in raising sufficient funds to cover these respective expenses or in locating any other source of funding, USO will terminate and investors may lose all or part of their investment.

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

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

USO's termination would cause the liquidation and potential loss of an investor's investment.

Termination could also negatively affect the overall maturity and timing of an investor's investment portfolio.

Trading in Oil Futures Contracts and Other Oil-Related Investments, such as forwards, involves USO entering into contractual commitments to purchase or sell oil at a specified date in the future.

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USCF has implemented procedures that include, but are not limited to, executing and clearing trades only with creditworthy parties and/or requiring the posting of collateral or margin by such parties for the benefit of USO to limit its credit exposure.

An FCM, when acting on behalf of USO in accepting orders to purchase or sell Oil Futures Contracts on United States exchanges, is required by CFTC regulations to separately account for and segregate as belonging to USO, all assets of USO relating to domestic Oil Futures Contracts trading.

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

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

USO, all assets of USO relating to domestic Oil Futures Contracts trading.

These FCMs are not allowed to commingle USO's assets with their other assets.

In addition, the CFTC requires FCMs to hold in a secure account USO's assets related to foreign Oil Futures Contracts and, in some cases, to cleared swaps executed through the FCMs.

Similarly, under its current OTC agreements, USO requires that collateral it posts or receives be posted with its custodian, and under agreements among the custodian, USO and its counterparties, such collateral is segregated.

In the future, USO may purchase OTC swaps, see “Item 7A.

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, 2019, USO held cash deposits and investments in Treasuries and money market funds in the amount of $1,176,245,411 with the custodian and FCM.

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

As of December 31, 2020, USO held cash deposits and investments in Treasuries and money market funds in the amount of $3,309,238,139 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 USO's custodian or FCMs, as applicable, cease operations.

Off Balance Sheet Financing

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While USO’s exposure under these indemnification provisions cannot be estimated, they are not expected to have a material impact on USO’s financial position.

European Sovereign Debt

USO had no direct exposure to European sovereign debt as of December 31, 2019 and has no direct exposure to European sovereign debt as of the filing of this annual report on Form 10-K.

Redemption Basket Obligation

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However, since USO’s initial offering of shares, offering costs incurred in connection with registering and listing additional shares of USO have been directly borne on an ongoing basis by USO, and not by USCF.

USCF pays the fees of the Marketing Agent and the fees of BBH&Co., as well as BBH&Co.’s fees for performing administrative services, including those in connection with the preparation of USO's financial statements and its SEC, NFA and CFTC reports.

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 USO’s condensed financial statements and its SEC, NFA and CFTC reports.

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

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

In addition to USCF’s management fee, USO pays its brokerage fees (including fees to an FCM), OTC dealer spreads, any licensing fees for the use of intellectual property, and, subsequent to the initial offering, registration and other fees paid to the SEC, FINRA, or other regulatory agencies in connection with the offer and sale of shares, as well as legal, printing, accounting and other expenses associated therewith, and extraordinary expenses.

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

In addition to USCF’s management fee, USO pays its brokerage fees (including fees to 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.

The latter are expenses not incurred in the ordinary course of USO’s business, including expenses relating to the indemnification of any person against liabilities and obligations to the extent permitted by law and under the LP Agreement, the bringing or defending of actions in law or in equity or otherwise conducting litigation and incurring legal expenses and the settlement of claims and litigation.

Commission payments to an FCM are on a contract-by-contract, or round turn, basis.

Commission payments to FCMs are on a contract-by-contract, or round turn, basis.

USO also pays a portion of the fees and expenses of the independent directors of USCF.

See Note 3 to the Notes to Financial Statements in Item 8 of this annual report on Form 10-K.

See Note 3 to the Notes to Condensed Financial Statements in Item 8 of this annual report on Form 10-K.

The parties cannot anticipate the amount of payments that will be required under these arrangements for future periods, as USO's per share NAVs and trading levels to meet its investment objective will not be known until a future date.

These agreements are effective for a specific term agreed upon by the parties with an option to renew, or, in some cases, are in effect for the duration of USO’s existence.

These agreements are effective for

a specific term agreed upon by the parties with an option to renew, or, in some cases, are in effect for the duration of USO's existence.

Either party may terminate these agreements earlier for certain reasons described in the agreements.

As of December 31, 2019, USO’s portfolio consisted of 19,178 WTI Crude Oil Futures CL Contracts traded on the NYMEX.

As of December 31, 2020, USO's portfolio held 74,708 Oil Futures Contracts traded on the NYMEX.

As of December 31, 2020 USO did not hold any Oil Futures Contracts traded on the ICE Futures.

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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