As you might be aware of this recent news: "RBC Capital Markets has informed United States Commodity Funds, the operator of the USO ETF, that they may no longer hold positions in or buy oil futures contracts until further notice" (source).

I am confused as to what this means. I understand that oil ETF has a rollover cost thus currently since the price is still recovering, it is costly to maintain the fund. But what does this have anything to do with RBC for them to take such action?

  1. They are just a broker to USO, so they can just be switched

  2. RBC can still make commissions out of the contracts


USO was rolling into the upcoming front-month oil future and out of the current front-month oil future on a regular schedule. That's not a shock to the market.

Then on April 30, 2020 USO had a new schedule such that they were staying out of the front-month completely. But since the July contract became the front-month on May 20, then an update from USO is now needed. However, the June front-month was completely stable. It's the May front-month that was difficult.


RBC has cited both its own internal risk management and direction from commodity regulators in dropping USO. Well, I personally don't see a risk with USO when on a new schedule of holding longer dated futures contracts. Also, the contango has become mild instead of extreme such that there is less risk of holding long positions.

But USO also has oil swaps with investment banks. The swaps mean that the investment banks just take the other side of the position from the position that USO wants. The swaps are probably more expensive than the direct buying of futures contracts. And so the situation is probably a small problem for USO of slightly higher expenses.

Maybe USO could buy and sell back-and-forth with the U.S. Strategic Petroleum Reserve as a client that never takes delivery. The would eliminate the critics. Then the SPR would gain storage fees.

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