Quote:
Originally Posted by burn_this_city
The ETF buys front month futures contracts with retail investor money and rolls it over between monthly crude contracts, today they announced they won't sell more shares to fill baskets of crude futures. So everything is basically riding on June 80% and July 20% futures contracts. June futures they started buying last few days have gone from $20s to $7 today, July will get dragged lower. If June's contract goes negative then the USO holders will be on the hook for the pay to take cost and the EFT will become insolvent.
At least that's my understanding of what will play out.
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Also, the ETF is a huge player in the market. Commodities traders are aware of this, and know that if the value of USO gets low enough, it will liquidate and sell a huge amount of June futures. Wanting to make money, they short june futures in huge size. That pushes the price down. The ETF sponsor wont want the value of USO to go negative, so if the value of the fund gets low enough they will liquidate. That will be a huge forced sale of june crude futures, pushing the price down even more. Then the traders will cover their shorts.